WhatHappened

to theBerkeleyCo-op?

A Collection of Opinions

With Introduction byRalph Nader

Consumer Advocate

And Preface byMasao Ohya

Executive Director,Japanese Consumers' Cooperative Union

Published by The Center for Cooperatives

The Center for Cooperatives was established by the California Legisla­ture in 1987as a center in support of research, education, and extension activi­ties to "advance the body of knowledge, concerning cooperatives in generaland address the needs of California's agricultural and nonagricultural coop­eratives ... "

The Center's objectives are to promote:

• EDUCATION. The Center offers formal and informal educationalprograms to those involved in cooperative management and developsteaching materials for all levels of interest.

• RESEARCH. To help the state's cooperatives reach their objectives,research is conducted on economic, social, and technical develop­ments. A practical aspect of this research: the provision of competitiveresearch grants, and studies for government agencies on how coop­eratives can help achieve public policy objectives.

• OUTREACH.The Center informs the public on coopera tives and theirsignificance to the economy of California.

Located on the University of California, Davis campus, the Center is aUniversity-wide academic unit. Its teaching and research resources are drawnfrom interested professionals from all University of California and state uni­versity campuses, other colleges and universities, as well as sources indig­enous to the cooperative business community.

Edited byMichael Fullerton

Editor, Berkeley Co-op News, 1976 to 1990

Copyright © The Regents of the University of California 1992

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Table of Contents

Preface: vMasaoOhya

Introduction: xiRalph Nader

Chapter I: Could the Failure of California's Uncommon MarketsHave Been Avoided 1Robert Neptune

Chapter II: Decline and Fall of the Berkeley Co-op 11Paul Rauber

Chapter III: How to Kill a Co-op 19David Klugman

Chapter IV: The Berkeley Co-op-Anatomy of a Noble Experiment 23GeorgeYasukochi

Chapter V: A Home Economist's Point ofYiew 33Helen Black

Chapter VI: Failure From Neglect of Co-op Principles 39Robert Schildgen

Chapter VII: An Unsuitable Job for a Cooperative? 51Lynn MacDonald

Chapter VIII: The Rise and Fall of CCB 57Margaret Gordon

Chapter IX: Governance Factors as a Key Element in theDecline of CCB -A Personal Perspective 65Terry Baird

Chapter X: The Final Years ..Bruce Black

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.. 71

Chapter XI: Other Views 77Adolph Karnil, Marcia Edelen, Serena Bardell & Doug Buckwald

Chapter XII: The Palo Alto Co-op 83Morris Lippman

Chapter XIII: What's Next for California's Consumer Co-ops? 87David J. Thompson

Appendix I: A Brief History of the Berkeley Co-op 93

Appendix II: California's Cooperative Community 99David J. Thompson

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Preface

Masao OhyaExecutive Director, Japanese Consumers' Co-operative Union

A success story isa record of the victorious. Full ofinspirationand pride, it is an encouraging tale that rouses the envy of itsreaders. In contrast, a story offailure is naturally dishearten­ing. It isfilled withthe agonies, grievances and shames ofmanythat have suffered andfallen. It communicates a sense ofdis­appointment that wrings the hearts ofits readers.

This is the story ofthe fall ofthe Berkeley Co-op. It isasorrowfultale that delves for the cause offailure, astory frankly related IJythe people that were involved with the co-op at that time.

How the book carne about

We were well informed that the business of the Berkeley Co-op wasgrowing worse with each passing year. This was apparent to the co-op peoplewho called on the Berkeley Co-op during yearly visits to the United States. 11,esituation began to quickly deteriorate in the late 19805. The Berkeley Co-opdegenerated into a problem ridden operation, and there seemed little hope itcould recover. There were strong feelings among Japanese co-ops that some­thing should be done to help, especially within the Nadakobe Co-op (presentlyCo-op Kobe) which was Berkeley's sister co-op. There were also calls fromthe Berkeley side. But as is related in this book, the situation was far graverthan many had imagined. The Co-op was in fact spinning headlong to itsdestruction.

After J. Ikeda, ex-managing director ofTokatsu Co-op, saw with his owneyes the pitiful, weather-beaten Berkeley Co-op stores after they had closeddown, and read the sensational newspaper article "Who Killed the BerkeleyCo-op?", he suggested that we ask George Yasukochi, former controller of theBerkeley Co-op, to write about the incident so that we might learn a lessonfrom the tragedy.

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In the beginning, I had misgivings about the proposition. How could Iask a person who was in an organization about to go bankrupt, to do some­thing that was akin to opening an old wound? Coming from a foreign coun­try not directly involved with the Berkeley Co-op, the proposition would bediscourteous to say the least. However, when bankruptcy became imminent,I felt that, rather than idly stand by, we should strive to create something posi­tive from the failure.

We discussed the matter at the JCCU executive board meeting and fi­nally agreed to go through with the proposition. After all, the Berkeley Co-ophad been a paradigm to the japanese co-op movement. It had been our guid­ing star, an advanced co-op that we had all looked up to. Mr. Fukuda, ex­managing director of the JCCU, was invited by the Cooperative League of theUSA to visit the Berkeley Co-op in 1959and stayed there for six months. Sincethat time, more than 1,000co-op people had presumably visited the BerkeleyCo-op.

Incidentally, I was a guest of the neighboring Palo Alto Co-op at thattime. Both invitations had been made possible mostly by funds accumulatedthrough used paperback book sales conducted by the two co-ops.

Co-op products, its logo, supermarket management, and member rela­tions activities are all part of the co-op movement today. Many of the prin­ciples which drive the current movement were learned from the Berkeley Co­op. The guiding star, our hope, at last fell. Thus, we finally arrived at the con­clusion that we need to learn from the history of its downfall, even at the ex­pense of discretion.

Mr. Yasukochi sent word that he would see me as a friend of long stand­ing, although my visit would be an unpleasant one. Mr. David Thompson ofthe National Co-operative Business Association (NCBA) consented to act as ago-between.

On November 17, 1989,exactly a month after the devastating San Fran­cisco earthquake, the ceremony for the restoration of the Bay Bridge was heldon the bridge. The mood was jubilant, and people enjoyed a song by popularTony Bennett, "Coming home to you Oakland, San Francisco," which rang overthe bridge. Mr. Yasukochi, however, appeared dispirited throughout the en­tire celebration. On the 19th, we gathered at Mr. Yasukochi's home to discussdocumenting the causes behind the fall of the Berkeley Co-op. Ifmy memoryis correct, there were eight of us: George Yasukochi, David Thompson, Rob­ert Neptune, Robert Schildgen, Bruce Black, Margaret Gordon, Michael Ful­lerton and myself.

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Mr. Thompson chaired the meeting, and we discussed the reasons be­hind the collapse of the Berkeley Co-op. Each participant presented a slightlydifferent opinion, but we reached the conclusion that it would be of great ben­efit, even to the U.S. side, to put together a record. Everyone promised to co­operate. Mr. Fullerton volunteered to act as a coordinator of the project, andeveryone agreed to do their share in securing manuscripts and to publish thebook simultaneously in Japan and the U.s. Six months later, all of the manu­scripts were in.

Nineteen people from various fields agree to contribute. The group in­cluded a wide selection of people, ranging from the Berkeley CO-DP'S chair­man of the board, directors, general managers, staff and other personnel, tomembers and outside people as well.

Why the Co-op collapsed

Each contributor presents a different reason for the failure. Naturally,their views are affected by the positions they held at the time. Thus, there isno uniform outlook which clarifies the real cause, and their theories cannot beeasily categorized. Perhaps the various opinions summed up together definethe cause, yet some of the views presented contradict one another.

The internal condition of the Berkeley Co-op described by the contribu­tors shows us that the situation was much more serious than had been imag­ined. Strong antagonism divided the board members into two opposing par­ties. This strongly influenced the management which brought about instabil­ity among the general managers and the arbitrary execution of decisions.Democracy was stretched to an almost absurd degree, which lead to the even­tual nullification of democracy altogether. Staff members were confused andbecame apathetic to the policies of the board and the management. Co-opmembers were kept uninformed of policies concerning the expansion of theorganization, opening of new stores, merchandise policies, and other co-opoperations.

Many of the contributors point out that co-op principles were not imple­mented. Disagreement among the board members gave rise to other internalstrife. Members left the co-op one after another, and unity and harmony weredisrupted. Discord within the board seems to have had its roots in the politi­cal climate of the Berkeley community. More effort should have been madeon the part of the co-op to create a system capable of evading such strongclashes and conflicts. It is interesting to note that, among the contributors,

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those that held executive positions stress that the major problems applied tothe management, while the others point out the issue of participation of co-opmembers. While the management side was busy making efforts to reducecosts, members began to sense that they were being ignored. A commonmerging point was difficult to find. Thus, the two sides gradually developedinto opposing forces.

What the ideal co-op should be like

The problem of balance between the management and organizationalunity is ever-present, and it must be solved in the daily practice of co-op ac­tivities. A co-op, needless to say, is an organization of members. Althoughthere may be various justifications, if the members' involvement in the co-opis neglected and the members are viewed merely as customers so that impor­tant decisions and actions are carried out by the management alone, memberswiu begin to tum their backs on the co-op, causing it to lose its identity. Sucha situation is often accompanied by a management crisis, because the peoplethat the co-op has depended on as its buttress are no longer there. "Concen­trate the wisdom and power of each member to strengthen the co-op," is along-standing slogan of the JCCU. Management is, of course, important be­cause even a co-op is a live business body. It is the inherent duty of the man­agers to insure that the co-op stays in the black. At the same time, it is neces­sary to join forces with staff members and strive towards the goals of the co­op movement, laking calls from the members into consideration. Throughoutthis process the leadership exercised by the board is very important. Indeedthe unity and solidarity of the board members is the mainstay of the organiza­tion.

Herein lies the difficulty of the co-op movement: The movement mustprogress as a harmonious unit, although there may sometimes be inconsisten­cies. The cause of the Berkeley Co-op collapse can be found in the compiledaccounts of the contributors, each representing a different aspect of the case.However, I will let the readers reach their own conclusions.

The 1980s can be described as a bleak period for the co-op movement.On the European continent consumer cooperative societies collapsed in theNetherlands, Belgium, France, and Germany. In Canada, the co-op in theQuebec province went bankrupt. Some argue that these co-ops failed becausethey could not stand up to the competition of the retail industry. The facts,however, show that the management belittled the members and tried to ex­pand in excess of the co-ops' capacity. Unfortunately, the International Co-

viii

operative Alliance (ICA)hasn't amply addressed these failures. However, thedebate concerning "The BasicValues and Principles of the Co-operative," pro­posed for the 1992ICA Tokyo Congress, will be one approach which addressesthe true nature of this problem.

The analysis of the Berkeley Co-op breakdown-a co-op which sufferedmuch and paid a great price-should teach usa valuable lesson. The contribu­tors will certainly feel gratified if the reader deeply ponders the messages con­tained in the accounts and applies them to daily practice in the co-op move­ment.

• • •

I iooutd like to expres5 my heartfelt gratitude fa tile!o{[owillg people for their contribution: Mr. A.Kuunoto. Mr. S.Chtsu.cnd Ms. M. /-/£Isebe of the /CCU tnrernotiona! Dioision, and Mr. K. Fllknta ofCo-op Kobe for helpillg with the tra!lslnlion; tilecooperation of the Twirl Pines Cooperative FOlllldnfiollfor the Americall editioll; Mr. M. Fullerton for his III/CellSillS work ill editillg; Mr. D. ThoJllp&JI1 ,-vilaactedas the organizer of the project "witll the supportof Mr. R. Scherer, Ciwinnan of the NCBA; andevery(Inc of the contributcre. And lastly,1hope from liteIlO/tom of Illy neart that {heCO-Oil IlIOVC/IICllf illCaliiornia will riselip onceagainand soarlike flte phoenix.

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x

INTRODUCTION

Ralph NaderConsumer Advocate

What makes this volume so exceedingly valuable to consumercooperators, consumer advocates andeconomic historians is therarity and insight ofa diverse retrospective analysis regardingthe causes of the decline andsudden collapse of the giant Con­sumer Cooperative ofBerkeley. Over a dozen viewpoints frommanagers, employees, members of the board, and other skillswhich participated in this major San Francisco Bay Area insti­tution, provide avaluable array oflessons for present and futurecooperators in the United States andabroad.

At its peak, the Consumer Cooperative of Berkeley came as close to be­ing a modest retail sub-economy as any co-op complex in North America. Inaddition to several food co-ops, there was a co-op hardware, co-op gas station,an arts and crafts co-op, a co-op bookstore, and a co-op burial society. Therewas and still is a thriving credit union and student housing cooperative sec­tor. Commencing in 1937, the Berkeley Co-op reached a height of 116,000members, mostly family households who purchased 82 million dollars worthof goods and services a year. It pioneered numerous consumer reforms in theCalifornia state government, demonstrated the value of home economics, aregular monthly newspaper, consumer advocacy, legal services, and on-sitechild care while the parents were shopping. Visitors interested or involved inthe cooperative movement from the U'S, and all over the world, visited thisthriving enterprise that was owned and, in principle, controlled by its mem­ber customers. The Berkeley Co-op made a particular impression on Japanesecooperators in the Fifties and Sixties during the rebirth of that country's coop­erative institutions.

Paul Rauber, editor of the Co-op News from 1985 to 1988, summarizedthe factors that led to the demise of the Berkeley Co-op: "Too-rapid expansioninto areas without a firm member base and increasing reliance on non-mem­bers; an attempt to emulate aspects of major supermarket chains beyond the

xi

organization's ability to do so; political strife at the board level, which keptmanagement of the stores in turmoil; changing demographics of the core areain Berkeley; inability to control labor costs as a percent of sales; a spectacularfailure of the Rochdale principles of cooperation between cooperatives; andplain bad luck."

When for-profit institutions get themselves into economic trouble, shortof the all too frequent bankruptcy solution, a new strong managerial handcomes in to take over and revive the finn. During this restoration process, agreat deal of control is concentrated in the hands of management vis-a-visshareholders, employees and even the Board of Directors.

A cooperative has to wrestle with the paradoxes of its principles when itis in economic difficulties. There are calls, not for centralization, but for greaterdemocratic control and participation by the members to save or revive thecooperative. There are demands by competing factions-one arguing for thesocial activism of the cooperative in the areas of opposing discrimination, boy­cotting goods and services sold by companies accused of unfair labor, con­sumer investment, environment, and other anti-justice practices.

Cooperatives cannot escape these paradoxes because they are intimatelyrelated to the very raison d' etre. A balance of decision making procedures isnecessary in order to permit prompt and firm administrative and managerialaction. If there is too little member participation and rights, co-ops becomemore like their commercial competition. If there is too much member voiceand rights, the community, that is the cooperative, becomes subordinated,anemic and paralyzed. In a competitive economy where there are otherchoices for consumers, this condition can be terminal.

For any consumer cooperative venture there needs to he an economicphilosophy that embraces the total orientation of a just economy. This phi­losophy includes an appreciation of the multiple functions that any economyshould fulfill and its short and long range sensitivities for other values in thesociety than just mercantile ones - such as environment, clean politics, etc.Such a philosophy, conveyed, discussed and refined by consistent consumer­member education, provides a sense of mission that can distinguish whypeople should spend time with a cooperative in addition to dollars. In ourbook Making Change', which studied why European cooperatives succeededand why they faltered and often failed, the absence of a distinct member-edu­cation system around an economic philosophy led to Widespread alienation

'Making C/ratlge? Learning from Europe's Consumer Cooperatives, 1985, Center For ResponsiveLaw, P.O. Box19367, Washington, DC 20036, $30.00. (535.00 overseas price).

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of consumers and the consequent assimilation of the cooperative toward theircommercial model competition.

The history of the Berkeley Co-op illustrates the tensions between thesecontending forces and also raises the question of scale. Can a giant coopera­tive be a genuine cooperative, even if it restricts its patronage to members only,which Berkeley did not? Can managers brought into the co-op from their pre­vious experience with commercial supermarkets possess the sense of balancebetween the social and the economic which comprises a cooperative's mis­sion? Can consumers, who since early childhood have been absorbing adver­tisements on television that define food the way the huge food processors wantit defined, animate the co-op to be different in the kind of food and labelling itoffers in its stores? How can members project a cooperative vision of whole­some consumption onto the people who work and run the co-op on a dailybasis? Is modem life so busy with daily demands that such a wise consumerculture cannot earn the time it needs to develop and reshape industrial societyall the way through wholesalers, producers and raw material extractors?

This volume raises and comments on many of the issues needed to ap­praise the role of cooperatives in the twenty first century. While credit unionsare quantitatively thriving, food cooperatives are in trouble. While buyingassociations appear more flexible and less risky to theirmembers, informationand communication cooperatives are still in their infancy. The nineties shouldbe a period of reassessment of the future of the consumer cooperative move­ment if it is to regain a dynamism for a buyer-sovereign economy of conse­quence.

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CHAPTER I

By Robert Neptune

••••••••••••••••••

Could the Failureof California'sUncommonMarkets HaveBeen Avoided?

CCB general managerfrom 1937 to 1943 and AC gc,tcral manager from 1943 to 1982. Whilehe wasAC geuerat manager, for two briefperiods healsoservedasgeneral rJ/ilIwger viCC8; these periods were1979-1980 and 1982. Hewasa member of the Board of theCooperative League of the U.S.A. from 1949fa 1982 and is a memberof the national Cooperative Hall of Fame. Neptune is also tlJe author ofCalifornia's Uncommon Markets: The Story of the ConsumersCoopcmlives 1935 to 1981; someof tirematerial in theabove article is froman epilogue to this book published ill 1989.

Consumers Cooperative of Berkeley (CCB), Consumers Cooperative So­ciety of Palo Alto (CCSPA), and Associated Cooperatives (AC) have along history of success and effective consumer-oriented merchandis­

ing activities over a span of more than 50 years. Their successful operationsbecame examples to others-both in the United States and abroad-of howconsumers could organize and operate their own business enterprises. Thevolume of sales that was developed provided a very Significant portion of thepurchasing power that was consolidated nationally under Universal Coopera­tives and under the CO-OP label.

However, during the 1980s operating losses led to the closing and saleof some of the stores, both to try to stop operating losses and to gain the cashflow that came from the liquidation of inventories and capital investments.Unfortunately, these efforts were unsuccessful in stopping the losses. Ulti­mately, CCB filed for reorganization under the bankruptcy code and closedthe last of its stores. CCSPA sold all but one of its stores to pay its debts. AndAC liquidated its inventories and sold its real estate, shrinking activities to oneemployee who supervised investments in other wholesalers who had becomeagents for handling co-op products.

,Why Did This Disintegration Happen? Could It Have Been Avoided?

The answers, in my judgment, are not simple. Any explanation willprobably fail to take into account some of the reasons. But I don't think thissudden collapse was necessary. I recognize that the problems were massive.Even with shrinking operations, though, it seems to me that much more couldhave been retained.

To answer these two basic questions in more detail, it will be helpful toreview the environment in which operations were being carried on. Whatwere the co-ops' objectives? How were the co-ops being operated?

What Were the Objectives?

In the beginning, there were no stated objectives, except to establish aconsumer-controlled food-store service. Today, new cooperatives are urgedto find a niche in which they can provide their members with unique productsor services. At that time, operations were on a very small scale. As they be­came larger, the co-ops began to offer complete food-store services, frequentlypioneering in new or unique products or services, It was soon clear that thesecooperatives would compete "head on" with the major chains. To do this ef­fectively would require them to be as efficient in their operations and to buyand distribute as well as their competi tion. This.then, became the major objec­tive.

How Did They Carry on the Operations?

The two cooperatives in Berkeley and Palo Alto developed during theDepression years. They began on very small scales. In CCB's case, they beganby taking phone orders twice a week and making deliveries to individualhomes. In CCSPA's case, there was a small basement buying depot.

During the first few years, employees were paid only what the smallvolumes would allow. Then, when larger quarters made possible larger vol­umes, the stores became unionized. Basic labor costs were then competitivewith those of the large chains. Since labor is almost two-thirds of the totaloperating cost of a food store, cost competitiveness then became a matter oforganizing the work to be at least as efficient as the competition. This is one ofmanagement's primary jobs. For many years this was done effectively.

But operating cost effectiveness in the retail store is only part of the equa­tion. Buying costs needed to be competitive too. Here the larger chains initiallyhad an advantage. Their large aggregate volume made possible low-cost pur­chases, with integrated distribution between a central warehouse and thestores.

2

The co-ops were buying initially from independent wholesales which,while efficient. sought to make a profit from the wholesale function. At first.the major retailer-owned wholesale in this area (United Grocers) would notservice the consumer cooperatives because of opposition from their major in­dependent grocer members and because of the philosophy of their manage­ment. Later, they permitted participation in their distribution program by al­lowing purchasing in the name of the co-ops' management. Ultimately, the co­ops were permitted to become full members. Membership in United Grocersenabled the co-ops to buy basic products competitively, but it did not providethe lowest costs than an integrated warehouse-retail store could attain.

Many of the chain stores featured private-label goods (products labeledwith brands owned or controlled by the chain distributing them). A signifi­cant part of the net profit of the chains came from the earnings of these pri­vate-label products, particularly when they were manufactured by the chain­store company.

The cooperatives needed to compete with these private-label products,not only to have competitive retail prices, but also to obtain the extra operat­ing margins that such products could produce. There was an added advan­tage in that the co-ops, as owners of a private label, could determine the qual­ity of the products they were to be featuring.

Associated Cooperatives became the agency that provided the inte­grated distribution between a central warehouse and the stores. Itwas also theagency picked to develop and distribute the needed private-label productlines, under the CO-OP label.

AC's early activities were focused on procuring and distributing CO-OFlabel goods, along with some specialized products that carried larger thanaverage margins or were otherwise not available through the usual channels.It was not until the warehouse was moved to Berkeley and expanded in 1959that it began to carry a full line of grocery products for the stores. By that time,both the Berkeley and Palo Alto cooperatives had added second stores andwere well along in their plans for third sites. Shortly after this, CCB purchasedfive stores from Sid Wallace, who operated Sid's Stores. As a result of this ac­quisition, earlier expansion, and subsequent stores, AC had the basic volumethat enabled the stores to have fully competitive costs and retail prices as com­pared with the chain stores.

During this period, store sizes in the food business were increasing.Minimum sizes of purchases from manufacturers to wholesalers 'were alsoincreasing. But as the requirements increased, fortunately, the co-ops were alsoincreasing in size. They were able to keep competitive in store size and in theirpurchases, buying in carloads when necessary, and keeping turnover at com­petitive levels.

3

The co-ops operated a thoroughly modem warehouse, with pallets,racks, coded assembly lines, loading docks, and efficient procedures. Theiroperations were automated and computerized, and they were at the forefrontof innovative distribution techniques.

In the early 1980s, the cooperative system in Northern California waswell integrated. Orders were "written" by scanning wands in the stores andtransmitted over the phone to the computer center. Invoices were automati­cally prepared. Goods were' frequently delivered to the stores the same day.

Computerized analysis and inventory information provided recordsand key data to the buyers. The buying at the warehouse and the merchandis­ing for the stores were done' by the same personnel. So there was no duplica­tion of personnel costs and no lost motion between the buying function andthe selling function. This system provided for the stores a full line of groceries,fresh produce, fresh meats, delicatessen items, health and beauty aids. In theperishables departments, the Savings from integrated operations were evengreater than in the grocery department.

The integration went one step further at CCB's ElCerrito store (as a pilotproject) where scanning, in conjunction with the central computer, was putinto effect. The process was then ready for installation at other stores.

Regular price surveys demonstrated that the system provided retailprices that were competitive with those of the largest competitor, SafewayStores. Price comparisons between the cost of delivered goods to the storesfrom the central warehouse, compared with the costs from other suppliers,showed significant savings to the stores as a- result of the co-op integration.

This integration had resulted from decisions by the managements ofCCB, CCSPA, and AC that their competitive positions could best be securedand maintained by integrating the buying and distributing functions betweenthe central warehouse and the retail stores. By1982,there were 16 supermar­kets being serviced in this fashion. This voluntary integration had its problems,to be sure. Communication was not always the best. Agreement was not al­ways 100%. Responsibilities were to three different boards of directors. But,by and large, the system worked.

Previous Attempts at Merger

There had been several unsuccessful attempts at more formal mergerand integration. In 1961,the managements of the three cooperatives met for aweekend to discuss the future. They agreed that the long-run economic suc­cess of the cooperatives in the Bay Area would be significantly enhanced bymerging them. They recommended to their boards of directors that the threecooperatives merge. This was not an easy recommendation for the managers,for none knew what his place might be in such a merged operation.

4

After a study, the proposal was turned down as premature, although theanalysis provided by a consultant indicated that, long-run, this was probablythe right way to go. The idea surfaced again in the late 1960s,was studied, anda plan of merger was presented at an AC annual meeting. The timing hap­pened to coincide with a change in political control of CCB with the"progressives" becoming a majority. They had not been a part of the planningprocess, and they killed the proposal. They were not necessarily opposed tothe idea, however, for they soon proposed that CCB "take over" AC unilater­ally. This could not be done under the structure then in effect, and the effortfailed.

A proposal for merger was finally approved in principle by the AC Del­egate Assembly in 1971, with a committee appointed to detennine the nextsteps. But changes in the make-up of the boards of directors again workedagainst implementing this plan, and no further formal action was taken.

The closest formal integration that took place was during two of theyears I managed both AC and CCB. During this period there was no questionof people in either organization acting independently in buying and merchan­dising, for everyone was aware that there was only one general manager in­volved.

What Caused the Disintegration?

So, what caused this integrated, competitive system of consumer-con­trolled stores to disintegrate?

1) Cooperatives need to operate and be judged on their effectiveness asbusinesses. This means they must operate in the "black." This requires man­agement to control costs and live within the margins that the sales develop.This was not done. Continued heavy losses over several years depleted work­ing capital. Sales of property and operating entities to replace lost capital even­tually destroyed the volume base. This is the basic reason.

2)There developed a lack of communication between the managementsand boards of AC and CCB. Joint planning was dropped. Integrated opera­tions were gradually discontinued. Joint use of computer facilities wasstopped. Finally, in December of 1986 the AC manager put CCB on C.OD.terms, saying that, because of the huge receivable from CCB to AC. all futuredeliveries would have to be made on a cash basis.

Unilateral decisions of this kind should not be permitted in the kind ofsituation in which CCBand AC were operating. Discussions should have beenheld at length to find a solution to what was a real crisis: the lack of cash flowat CCB which resulted from its continuing operating losses. ACs and CCB'sfutures were locked together. A mutually acceptable answer needed to befound.

5

The result of the AC ultimatum was not further discussion. It was an­other unilateral decision-this time by CCB to change its major SOurce of sup­ply from AC to Certified Grocers of Los Angeles. Certified was willing to ex­tend limited credit to CCB in order to get the large volume of purchases in­volved. AC was suddenly faced with sales volume reduced by 60% or more.Precipitate changes of this kind, without providing for orderly reduction ofstaff personnel or of inventory or of other costs, result in terrible crises and highcosts. The managements were unable to communicate or share problems. Re­lations became so bad that the AC manager literally constructed a wall be­tween the two, previously shared, office spaces, and locked the doors. Incred­ibly, the two boards of directors backed up their respective managements.

This was the crisis-cause of the disintegration, and it wiped out relation­ships that had been developed over almost 50 years in a matter of days.

3) A major contributing cause of the continuing losses at CCB was thedecision to reopen the food store in Corte Madera as part of an upgraded, high­style food market and shopping center (calledSavories) for Marin County resi­dents. The store was beautifully laid out, with service meat and deli features,bulk goods, and high-style products. There was no significant member par­ticipation in the decision to reopen this market, and it was beyond the level ofappeal for the co-op members in the Marin area. It failed to corne even close toits minimum break-even saies level. Consequently, it was a large cash drainon the organization from its inception.

In the light of the operating and cash-flow problems of CCB, taking aflyer on this kind of project was a bad error in judgement for both manage­ment and board. This fiasco contributed greatly to the continuing operatinglosses.

4) There began to develop a loss of sales momentum. Year-to-year com­parisons of sales by store location began to show declines instead of increases.A part of this may have been public relations and communication with themembership, particularly at the end when the board did not keep the mem­bership completely aware of what was going on. But the alienation beganmuch earlier.

a) One cause of the alienation was the dropping of CO-OP label prod­ucts when the wholesaler was Changed from AC to Certified. The mem­bers had accepted the CO-OP label well, and a sudden substitution wasjust not acceptable. Later, the CO-OP brand was partially reinstated. Butthe loss of full member confidence and patronage continued.

b) I believe a major reason for the alienation of many members wasthe decision of the Board of Directors of CCB to withdraw items of con­troversial nature from the shelves of the stores, because of the unionstance of the supplier, because of ecological reasons, or because of philo­sophical differences. Later, this position was modified to post the shelves

6

with a notice that the product was controversial (with the pro and conarguments posted on a bulletin board), but not to withdraw the productfrom the shelves. But the initial acts of withdrawing products and forc­ing customers who might want them to go to another store had a verynegative response and caused the loss of members and, more important,the loss of patronage.

e) Another of the negative aspects of member activity that I feel af­fected the sales in the stores was the political infighting at CCB betweentwo slates of candidates for the board of directors. One slate put politicalconsiderations ahead of economic concerns. Sometimes there were 5-4splits in the board voting, and the predominant view might well changeeach year, depending on the winners in the annual election. By the timeof the closing of the last stores, control rested firmly with the group thatput political positions ahead of economic. This was part of the problem,though not necessarily decisive, at the end.

d) Another aspect of the problems outlined above was the alternatesystem, in which the three candidates for the CCB Board of Directorswho were defeated but who were next highest in votes to the winners,became alternate directors. They attended board meetings like regulardirectors. They participated in the discussions and even voted in theabsence of regular directors. The initial purpose of this provision in thebylaws was to provide a training opportunity for learning and orienta­tion for potential directors. But the practical effect of the system was toinsure that two contending slates of candidates, with opposing philoso­phies, would both be represented at board meetings. Debates werelengthened, and controversy was insured.

S) Labor contracts for the most part emphasized the importance of se­niority. When stores were closed, employees with the greatest seniority"bumped" into the remaining stores to replace employees with less seniority.Over the years the co-ops had employed a number of people who had devel­oped seniority over time but who did not necessarily perform as effectively asperhaps they might. There were many reasons for these poor performances,particularly a lack of training by the co-ops. But, for whatever reasons, the co­ops developed a large corps of employees entitled to senior benefits and jobassignments. Some were good employees and some were not. The result wasa disproportionate number of senior, high-paid employees, without the blendof new and lower-paid employees usual in a mix of seniority at most chainstores. This tended to keep co-op labor costs on the high side.

6) As stores were closed, the volume base declined. This meant that pro­portionate decreases in administrative costs were needed each time a store ordepartment was dosed. Proportionate reductions were not maintained.

7) During the last few years of the co-ops' operation, there was no long-

7

term planning. Decisions were being made on a case-by-case basis. No carefuloutline was projected as to where the organizations were heading.

8) Because economic.considerations were not always the top priority forsome of the members of the boards of directors, sometimes management wasnot asked to account soonenough or effectively enough for actions to resolvepoor economic results.

Could Disintegration Have Been Avoided?

Could disintegration have been avoided? I think so. But sometimes it'seasier to point out what went wrong than to have said at the time what shouldhave been done. But, in any event, I wasn't asked.

Mainly, I fault management-for not communicating between them­selves and even fully with their own boards. More complete discussions couldhave related problems and decisions to long-range objectives. Integrated op­erations should not have been given up so quickly over personality conflictsor even over a decision for C.O.D. terms. Problems should have been talkedout at the time and measured in terms of objectives and competitive positions.The managements should also have controlled costs more effectively andmoved operating results into the "black."

I also fault the boards, particularly at CCB and AC, who backed theirrespective managements when decisions were being considered to changebasic suppliers, to drop the CO-OP label, to stop joint use of the computer fa­cility, and to close down a warehouse. There were many alternative interimsteps that could have been.taken, and a "hard line" does not make for well­considered solutions.

In a merged operation, none of these drastic actions would have beennecessary. One board and one management would have made a more carefuland considered evaluation of the total situation. There would not have beentwo points of view to consider. Only what was good for the cooperative sys­tem as a whole would have been the subject under consideration. So I wouldalso fault those who, at an earlier date, failed to approve a merger of the orga­nizations.

Was It All Worthwhile?

We come, finally, to one other major question. Was the 50-year effort toestablish viable consumer cooperatives in California worth the efforts in­volved?

8

I think the answer has to be a very strong "yes." Irs one thing to be sadabout the ultimate collapse of an alternative distribution system. But the de­voted work of hundreds of employees and lay leaders over several decadeshad some very positive results.

1) Not everything is gone. There remain vigorous credit unions, hous­ing cooperatives, student cooperatives, a cooperatively-controlled insuranceservice, an artists cooperative, several natural foods cooperatives, several su­permarkets, and a number of buying clubs. Even the annual Co-op Camp Si­erra is continuing.

Associated Cooperatives continues in existence and is providing CO-OPlabel products and other services through its investment in Sierra Foods in SanFrancisco and NutraSource in Seattle. The North Coast Cooperative providesgoods and services to its stores and to other cooperatives from its Eureka ware­house.

A new California Association of Cooperatives of all kinds is beingformed. It will be working closely with the new Center for Cooperatives, au­thorized by the California Legislature, and housed at the University ofCalifornia's Davis campus. The Center is expected to provide services to allkinds of cooperatives.

2) Many of the co-ops' innovative activities have been copied and arenow a part of normal functioning of the food industry. These changes mightor might not have happened otherwise. They took place when they did be­cause of co-op initiatives.

3) For 50 years the cooperatives provided unparalleled services for theirmembers. Many who shopped almost exclusively at the co-op stores came toassume many of the products and services available there were normal andwere also present at other stores. When the co-ops closed, they were shockedto find this was not always so.

4) For 50 years the members elected directors, provided capital, andmonitored the results of their own businesses. They came to depend on theweekly newspaper for information they could rely on and a consumer philoso­phy unavailable elsewhere.

5) The CO-OP label became a dependable mainstay for the shopping ofmost of the members. It provided product information, frequently includinggovernment grades, and consistent quality that drew wide recognition andsupport.

6) The cooperatives provided a large consumer organization that advo­cated consumer rights and demonstrated what consumers could do for them­selves in a very competitive economy. It was carefully listened to in local, state,and national bodies when consumer concerns were reviewed.

7) The co-ops helped train a body of both lay and professional leadersand to shape their personalities as they entered other places of employment or

9

other organizations. Frequently, their democratic economic philosophy hasfound ways to be expressed elsewhere.

8) At our peak there were more than 150,000members, mostly families.Each of these members was interested enough to buy at least a modest mem­bership share. In many cases, the investments were substantial. They boughtmore than $120million of goods and services per year. At $15a bag full, that isabout 8 million bags of groceries.

For me, personally, there has been the opportunity for the friendship andsupport of colleagues and friends throughout California and nationally, aswell as that of hundreds of volunteer leaders of cooperatives in all parts of thestate. From our joint efforts in working toward shared objectives has come asatisfying life which has emphasized service, as opposed to personal gain, asthe primary motivation.

10

CHAPTER II

By Paul Rauber

••••••••••••

Decline and Fallof the BerkeleyCo-op

Rauber waseditorof the Co-op NelL'S from 1985 to 1988. A longer and moredetailed article by RauberCllfitlcd "Vv'I/O Kilfed the Co-op?" appeared in theIlIIIe 17, 1988 ieeuc of The Express, a weekly newspa­perpublished in Berkeley. Rauber ItoW worksas a free/alice 'writer. His work hasappeared in Motherlones,California l.flwyer, Sierra, 51m Francisco FOCI/s, III TheseTunes,and The Nation.

The Consumers Cooperative of Berkeley (CCB) was once the largest re­tail food co-op in the United States. Its flagship Shattuck Avenue storeonce claimed the distinction of having the highest sales per square foot

of any store west of the Mississippi River, and it pioneered many consumersreforms which later became industry standards. In its heyday, CCB fonnedpart of a cooperative mosaic: in addition to the Co-op grocery stores (whichonce held three-quarters of the market in Berkeley), there was a Co-op hard­ware store, Co-op gas stations, co-op housing projects for seniors, families, andstudents, a cooperative bookstore, an arts and crafts cooperative, a co-op creditunion, a cooperative travel agency, even the Bay Area Funeral Society, offer­ing cooperative funerals. Co-op was a way of life, and more.

Little now remains of that cooperative society. The collapse of CCB hasbeen the cause of no small amount ofbittemess among fanner members, manyof whom are sadly inclined to blame the very idea of consumer cooperation.Others seek scapegoats among individual managers or board members oramong particular political factions. But the disaster was too great to blame onanyone party: the death of CCB was a cooperative affair.

CCB was in some respects a victim of its own success. Founded in 1937,CCB experienced a spectacular boom in the years immediately followingWorld War II. The baby boom was a boon for business: the membership ofCCB was young, loyal, and fertile, buying lots of food for growing families.The stores prospered enough to provide new services for these young fami­lies, like in-store child care, or "kiddie korrals," which were introduced in 1953.In subsequent years, many of the children of the original members moved out

11

of town, and birth rates declined: the shopping carts once heaped high beganto shrink to suit the area's declining household size.

None of this was anticipated in the boom years of the '50s and '60s. In­stead, CCB had embarked on an aggressive expansion program-sometimesat the expense of member involvement. "How do we keep democratic controland participation while we continue to expand?" asked the Co-op News in 1955.The question turned out to be prescient: as CCB grew, individual membershad less and less control, with momentous decisions increasingly made inexecutive session by the board.

The first such decision was in 1962, when the board voted in secret topurchase five stores from the failing Sid's chain: three in Berkeley, one inWalnut Creek, and one in Castro Valley. CCB membership swelled to 30,000with the rapid expansion, which doubled the number of stores. Member par­ticipation, however, steadily decreased. With the purchase, CCBalso took onmany of the Sid's employees, who were totally unfamiliar with cooperativism.Some took an active interest in the organization, even becoming active mem­bers, but for most it was just a job like any other.

Only one of the stores turned out to be a moneymaker; the four otherswere drags on the company and were eventually discarded after years oflosses. The lesson was not learned until too late: converting failing stores toco-ops is not a magical remedy to turn them around.

In 1974,CCBrepeated the Sid's mistake with the purchase of three storesin neighboring Oakland from the Mayfair chain. The area had no existing baseof members, in contrast to San Francisco, which had long lobbied for a storeand finally got one in 1975. The San Francisco store's location, however, was acontinual problem. This came toa head in the mid-1980s,when the landown­ers undertook a series of not-so-subtle actions aimed at forcing CCBout. CCBfinally abandoned San Francisco in 1986; the site is currently occupied byCCB's traditional nemesis, Safeway.

CCB was seldom able to expand in a logical manner, instead relying ona mixture of messianism and opportunism. The board often made decisionson the basis of a good real estate opportunity rather than from a reasoned plan.In addition, CCB's traditional competition with big supermarket chains likeSafeway or Lucky led it into an ironic emulation: from a few small stores, CCBgrew into a mid-sized chain. This had its advantages, as the economics of thegrocery business favor growth. Opening new stores allows the senior, morehighly paid workers to be spread about, and brings more entry levelclerks intothe system. Chains should also-theoretically, at least-benefit from econo­mies of scale in administration, although CCB's central officeadministrationwas habitually larger than what the stores could support. Furthermore, CCBwas supplied until the mid-1980s by an allied cooperative warehouse, Associ­ated Cooperatives, which also needed a growing movement in order to com-

12

pete with the capitalist warehouses.In practice, the cooperative ideal was not easily exportable, especially in

a society with little experience in economic cooperation. "In Berkeley, this co­op is a community institution," wrote former CCB president Fred Guy in theCo-op News in 1986. "Elsewhere, it was a tentacle of a foreign organization. lnBerkeley,many people join the Co-op because it's just something you do in Ber­keley; elsewhere, recruitment was more difficult."

As CCB expanded outside Berkeley, member patronage continued todecline as a percent of total sales. That meant CCB was increasingly depen­dent on shoppers that were less loyal, less educated about the theoretical un­derpinnings of the store, and who didn't buy the shares which supplied a low­cost source of capital. Until the mid-1960s, in fact, member shares were theprimaru source of capital. But starting in 1961, the average number of sharesper members steadily decreased, and CCB was increasingly forced to rely onexpensive, conventional financing.

"Nonmember patronage is a drug for co-ops," argued Guy, "and our co­op has become an addict, weak and dependent." Like most dependencies, thisone was cyclical: the more CCB moved beyond its original purpose of provid­ing goods and services for its members, the more it depended on nonmem­bers, the more it resembled its competitors, the less incentive there was to be­come a member.

As Berkeley was shaken by the events of the 1960s, the politically activeand socially aware CCB membership was in the thick of things. In 1966, theradical Students for a Democratic Society organized a "Housewives' Revolt"which won lower prices for hundreds of items. The stores closed when MartinLuther King, Jr. was assassinated in 1968,and again in 1969to protest the Viet­nam War. The free speech debate at the University of California was replicatedat CCB; it resulted in the establishment of a marketplace of ideas just outsidethe doors of the grocery marketplace, although not without a struggle. ln 1967,the Walnut Creek store refused to allow a table by a group trying to organizea peace vigil at a nearby nuclear weapons installation; a sit-in at the Berkeleystores soon reversed that opposition. In time, the Shattuck Avenue store ac­quired a reputation as the best place in the East Bay to collect voter signaturesfor ballot petitions.

As early as 1963,CCB members were engaged in a fierce debate aboutconsumer boycotts. The question was whether to actually remove controver­sial products from the shelves, or simply to post informational notices alertingshoppers to the nature of the controversy. In 1968,grapes coming from non­union farms were removed from the shelves and did not return until the unionlost its last contract in California in 1986. For years, many CCB membersproudly boasted that their children had never tasted a grape.

In time, a rather ponderous but indisputably democratic method for

13

dealing with controversial products was instituted, involving a lot of commit­tees and warnings and leading finally to a vote of the membership on whetherthe item should be withdrawn. The only time this procedure was actually com­pletely followed through was in 1985,when the membership voted to boycottnonunion Coors beer. When it came to Chilean and South African goods, avote of the board was sufficient to keep them from sullying the shelves.

CCB policy on boycotts, free speech tables and even store purchasestended to fluctuate depending on which political faction happened to controlthe board of directors at the time. As early as 1964, two opposing slates of can­didates were contesting CCB elections, the Moderates and the Progressives.These factions mirrored roughly the factions of the Democratic Party that werecontending for control of the City of Berkeley. While the Progressives fiercelyopposed the Sid's purchase, they supported the Mayfair deal in the belief thatthe new stores would be beneficial to low-income neighborhoods.

Contention between the two slates kept management perpetually offbalance. For example, in 1971 a Moderate board selected a new general man­ager, but by the time he started work, control of the board had changed and hewas forced to resign. Given the close balance of the two parties, and the factthat the three alternate directors had the power to vote in the absence of regu­lar directors, even temporary absences could result in substantial changes inpolicy. With one Moderate board member missing on December 28,1971, forexample, a temporary Progressive majority drafted a tough affirmative actionpolicy and voted to boycott five products made by Dow Chemical. Both poli­cies were reversed at the next board meeting.

It is hard to gauge the cost to the organization of the political squabbling.Whenever a controversial stand was taken, like boycotting Coors beer orChil­ean grapes, a certain number of members would swear never to shop at CCBagain. This would seem like suicide for a store dependent on the greatest pos­sible volume-s-except that such stands also seemed to increase the solidarity ofother shoppers. Once the door was opened to politics and social issues, it wasvery difficult to pick and choose which ones to deal with. The dangers ofavoiding controversial stands proved to be as great as taking them.

(In later years, the two factions put aside their differences in the interestof survival. Even so, many members continued to associate the board withpolitical infighting, long after it had ceased to exist.)

The CCB empire started unravelling in the late seventies, with mount­ing losses from the newer, peripheral stores. The response of the then Moder­ate-controlled board was to gut the Education Department, laying offall oftheeducation assistants who explained CCB services in the stores, and six of ninehome economists. The beloved kiddie korrals also disappeared at this time, tothe everlasting sorrow of many parents. People started complaining that it wasgetting increasingly difficult to distinguish CCB from Safeway or Lucky.

14

Despite the increasing difficulties, however, sales at the big Berkeleystores were large enough to cover the losses from weaker stores. This had theunfortunate effect, however, of postponing the closing of failing stores longerthan was prudent. Closures were also delayed by piteous outcries from theloyal members of the affected areas. In some cases, community pressure orga­nized by the stores' members succeeded in winning temporary stays of execu­tion, which only led to further losses. Ironically, the committed, loyal mem­bers who should have been the organization's mainstay helped bleed it dry,and the board and management proved they could not compete with the bigboys either in the management of stores or in the timely closure of losing op­erations.

The final disastrous real estate decision came in 1984, when a bare 5-4majority of the board voted to invest in an upscale new store in fashionableMarin County, across the San Francisco Bay. The elegant "Savories" storebarely acknowledged the fact that it was a cooperative: its sale purpose was tomake large amounts of money in order to support the other stores. The strat­egy was a sickening failure: the store lost money from the start and by the timeCCB withdrew had cost the organization more than $2 million.

Meanwhile, another even more crushing disaster was brewing closer tohome at Associated Cooperatives, the warehouse which supplied most North­ern California cooperatives. As CCB divested itself of losing operations, thenumber of customers for AC's CO-OP label goods steadily declined, throw­ing the wholesaler into financial turmoil. By 1985, AC had a debt of over amillion dollars and a shrinking market. In the course of an audit it was discov­ered that AC's accountant had grossly underbilled customers for their grocer­ies, an expense AC had to eat. Beset by its own difficulties, CCB fell more thana million dollars behind in payments to the warehouse.

The final conflict came when AC hired a new general manager fromoutside co-op circles. Free of the complex web of personal and institutionalloyalties which had bound the two co-ops in the past, the new manager wentfor the jugular. On Christmas Eve, 1986,he started demanding cash on deliv­ery from CCB.

This unexpected and decidedly uncooperative move quickly led tochaos. CO-OP label goods vanished from the shelves; and for several weeks inthe middle of the crucial holiday season, the stores were half-empty. CCBquickly moved to get a new wholesaler, but the damage could not be undone.Suddenly, after 50 years of hype about the superiority of co-or label goods,a new house label replaced the old familiar CO-OP label, and there was CCB'spresident in the Co-op News explaining how it wasn't really any different. Salesplummeted amid the confusion and never recovered.

The feud destroyed what little morale still remained. Negotiations be­tween CCBand AC quickly degenerated into barely disguised hatred on both

15

sides. One day workmen arrived at the building which housed both organiza­tions, and actually built a wall to divide the two cooperatives. Under the threatof legal action from AC, which asserted ownership of the CO-OP label, the Co­opNeuis removed the familiar logo from its front page. For longtime employ­ees who had once dreamed of a viable, alternative cooperative economy, thewhole affair was like a bad dream.

In September 1986, CCB hired new management with the clear under­standing that drastic changes would have to b\' made. The change most talkedabout was doing something-aboutthe cost of labor. CCB had, as a result of allthe store closures, an extremely senior labor force. Every store closing wouldresult in the "bumping in" of employees with most seniority; the result wasthat the least senior journeyman clerk at CCB was a 12-year veteran. CCB'scost oflabor as a percent of sales was a full five percent higher than its compe­tition.

The new management attempted to institute an ESOP, or employeestock ownership plan, in which employees would use part of their wages topurchase shares in the company. The clerks' union insisted on an employeemajority on the board, and a change in management. Reluctantly, the boardagreed. The lenders, however, did not: CCB's new wholesaler called in a $1million loan, precipitating the final crisis. On May 10, 1988, the union pulledout of the agreement. The next week, CCB was put up for sale.

Even the sale was messy and contentious. There were two main propos­als: management supported a $9 rnillion offer from a natural food store chain,while many old-time members and employees favored a plan to retain theprofitable Shattuck store as a joint worker/ consumerco-op. At the unanimousurging of the board, the membership voted for the former.

More humiliation was to follow. The natural foods people couldn't corneup with the money they had promised: despite the recommendation of theboard, their offer turned out to be incredibly flimsy. (Two years later, one ofthe two principals of the group was arrested on charges of grand theft andforgery.) Finally, the board voted to sell the three remaining Berkeley stores toa real estate developer for $7.8million. As of April 1990,two have reopened asconventional supermarkets, and the third is eventually supposed to reopen asa natural foods store. Several court cases have prevented the final dispersal ofCCB assets; after lawyers and creditors are paid, little if anything is expectedto remain to redeem member shares. .

What was it then that killed the Co-op? Too-rapid expansion into areaswithout a firm member base and increasing reliance on nonmembers; an at­tempt to emulate aspects of the major chains beyond the organization's abilityto do so; political strife at the board level, which kept management of the storesin turmoil; changing demographies of the core area in Berkeley; inability to

16

control labor costs as a percent of sales; a spectacular failure of the Rochdaleprinciple of cooperation between cooperatives; and plain bad luck.

The history of CCB vindicates the importance of democratic decisionmaking: the most costly errors came as a result of major decisions made insecret, or those made by only a narrow majority. It also shows the importanceof education: there is no school in America where managers can study how torun a cooperative. The result was that many CCB managers, and most of theemployees, had only the vaguest notion of how working at a co-op was differ­ent from working at a Safeway. The opposite extreme was reached by theboard, which in its zeal to adjudicate social issues sometimes seemed to forgetits primary goal was to run a grocery store. Committed Berkeley memberswanted CCB to be all things; indifferent nonmembers only wanted a conve­nient supermarket. Although it existed for more than 50 years, CCB was neverable to resolve this fundamental identity crisis.

17

18

CHAPTER III

By David Klugman

••••••••••

How to Kill aCo-op

Klugman joillcd CCB ill 1954,md servedforeeuerot years01/ thepublicrelations and unioncommittees.III 1962 hestartedwriting/or co-op publications ill Ellgland, France, Dennmrc.and fhe Federal Rcpub­lie of Germany. 'II 1969 he began publishing ill the Reviewof !he tnternationai Co-operative Alliance(lCA).

1111955, CCBgenerated a Funeral Societyas OIlC of the services amitabteto members. Klugman wasfH1IfJIIg theveryfirst to joil1 and, ;111984, became thevolunlcerexecutiue director, servingfor five years.During that period, membership and revemu! grew cOlIsidernlJly and Klugman waselected to ::;tate andnational functions ill the funeral societylIWVCmcllt.

Tllisarticle origirlfllly appeared in the October 18, 1988 iSSIIC of the Cooperatioe News, published ill

tvtanctwster, England. and in the July 1989 issueof tlteRcoieio of the Illfernatiolla[ Co-operative Alli­alice.

K illing a co-op is not easy. It took the Consumers Cooperative of Berke­ley (CCB), once the flagship of American consumers co-ops, 25 yearsto commit suicide. The decisive moments at which the CCB went

wrong could have been pinpointed at the time they occurred. Yet, as in HansChristian Andersen's tale, the crowds kept "admiring the emperor's clothes"until it was too late, when everyone developed hindsight.

CCB was unintentionally killed through a mixture of miscalculations,policy errors, and personality clashes, most of which reflected a violation ofthe Co-op Principles.

1) In 1962, a key decision was taken in secret by the board of directors, aviolation of the Democratic Control Principle. CCB bought out a larger chainof grocery stores, thereby biting off more than it could chew. This was repeatedin 1974 with another chain. The customers of those stores could not be turnedinto "instant cooperators," yet they had to be serviced by way of notices, elec­tion materials, the Co-op News, etc.-a huge burden on CCB's resources.

2) For years the board of directors was dominated by different factions,reflecting Berkeley city politics. This violated the "Principle of Political Neu­trality." Business concerns clashed with social concerns.

3) Starting in 1971, following the departure of CCB's general manager,who had served for 24 years, there was a seemingly unending flow of generalmanagers, each recruited at great expense, hailed as a savior, and greeted with

19

great expectations. A year or two later, each went out the revolving door, freelyor by request, under a cloud, with a great deal of bitterness on all sides. Nomanager can satisfy opposing factions.

4) CCB and its co-op wholesale supplier engaged in open warfare, inviolation of the "Cooperation Among Co-ops Principle."

5) General managers were permitted to indulge their whims, regardlessof cost. One wasted tens of thousands of dollars on luminous signs at eachstore, spelling out his favorite slogan, at a time of financial stress. Anotherlaunched a pet project ("Savories") which became a $2 million disaster beforeit could be terminated. This turned outto be "the straw that broke the camel'sback./I

6) Despite repeated promises, no serious co-op education for employ­eesever took place, a violation of the "Constant Education Principle." In 1968the education director, who had served for 18 years, was sacked following ariotous membership meeting. He received a so-called "golden parachute," oneyear's paid leave. He was succeeded by a string of education directors, mostof whom did not last very long.

From 1937 to 1962 CCB operated well, all indicators rising. Those werethe golden years. The following 25 years, 1962 to 1987, were the years of de­cline. The year 1962, with the acquisition of a larger food chain (its debts in­cluded), originally drove all indicators way up. They were not to stay up. Start­ing in the early 1970s, with the purchase of yet another chain of food markets,CCB had to throw out ballast, like balloonists trying to regain altitude.

Education assistants, home economists, child care supervisors, gas sta­tions, a repair garage, a hardware store, and finally the grocery stores them­selves were eliminated. The closing of each store forced CCB, in accordancewith the union contract, to relocate the most senior, most highly paid employ­ees to the remaining stores, greatly increasing operating costs.

In the changing America of the '60s, '70s, and '80s, bad checks becamemore common. At CCB bad check losses soon ran into many thousands ofdollars each year. Yet,despite alarm signals by concerned members, little wasdone. A proposal to reserve one check-out stand for "cash only" was halfheart­edly attempted and it predictably failed.

Conclusion

Successful co-ops are those for which the need is clearly perceived, suchas housing, credit, agriculture, or production. The need is much less clear in aconsumer co-op and, as services at CCB decreased, the perception grew thatthis co-op was no different from competing supermarkets, which were largerand could offer better prices owing to a greater volume of sales and lower la-

20

bar costs. Yet,over the years, CCB had set some standards which other super­markets adopted.

CCB had one asset left, namely membership loyalty. It took 25 years tokill even that asset. When, in 1988,CCB offered to sell the last remaining storesto repay $6 million in debts, a vote was held, as required by law. Over 90,000ballots were mailed out, only 8,000 were returned. When membership inputwas finally sought, under pressure, membership loyalty had worn thin.

If a lesson can be drawn from this tragedy, it points to the need to abideby the Co-op Principles. Breaking them is like breaking the Ten Command­ments. You pay for it in the long run.

21

CHAPTER IV

By George Yasukochi

•••••••••••••••••••

The Berkeley(o-op­Anatomy of aNobleExperiment

George is a native San Franciscan ana a 7940 University of California, Berkeft'Y graduate ill PublicAdlllillistrafioJl wllospent 41 years ill the coopcmtioc III0VCII/('lIt. From 7956 to 1982, Ire was IHI thestaffof CCB wherehe served as COl/troller. His priorstints were with tile Universify Students' CooperativeAssociation(Berkeley) and ill Cllicaso during World War If '1I'il1l the Hyde ParkCooperative Soddy,Central States Cooperatives, end Co-op Mas-azinc. Hehas 'visited coopemtives in Japlll', China,Thai­land, USSR, Elts/and, Switzerlana. Suxden, France. CermallY, and Austria.

Probing into the causes of CCB's demise is not unlike playing the role ofa "spin doctor." Those conversant with contemporary American poli­tics will recognize the spin doctor as the politica 1strategist who after

the fact employs the damage-control technique of casting a spin on a contro­versial event to suit his party's needs.

In our case, the motive may be honorable-to provide such historicalinformation and guidance that existing co-ops are not doomed to repeat thesame mistakes. On the other hand, the temptation is great to point fingers atothers or blame external circumstances beyond one's control. That is "protect­ing one's ass," in the choice words of an associate of mine.

Apart from motives, numerous obstacles pop up as we plunge into thisproject. The reader should be aware of the caveats. An analyst closely associ­ated with CCB governance or operations has a personally traumatic task, be­cause our death knell was a gut-wrenching shock about which it is extremelydifficult to be objective.

Insiders are further vulnerable to the charge of not seeing the forest forthe trees. Yet is it doubtful that a disinterested outsider could capture themeaningful nuances of CCB issues and personalities and discover the whole

23

or true picture, if there be one. Having personally participated in costly stud­ies of CCB by outside professional consultants, I hold a healthy skepticism ofsuch efforts, even though some did go beyond the perfunctory motions ofexperts who look at your watch and tell you what the time is.

A person's selective memory in reviewing the last decade of decay inCCB's half-century of existence is another handicap. To document properlyaII of one's exposition, claims, and interpretations is an ambitious research job,and it's likely that much pertinent data is unavailable. The considerable statis­tics that still are on file may not lie; but they are subject to misuse, especiallywith the vantage point of hindsight.

Having said all this, I will likely now succumb to the same failings of thisRashomon-like series of articles as I delve into my own version of what wentwrong at CCB. If my irreverent cliches and metaphors (some mixed) causeconfusion, blame it on my overreaction to 4O-plus years of bondage in the ac­counting world dealing with a never ending flow of static numbers.

The Berkeley Co-op Community

The factual history and background of CCB,especially its period of tra­vail, is presented elsewhere. Although there ought to be little controversyabout basic information like that, judgments and evaluations inevitably creepor rush in and must be viewed as those of the particular writer. The percep­tions of the role and influence of CCB are many, some bordering on myths.They have been circulated nationwide and written about in august publica­tions like the New YorkTimes and Washington Post. Overseas, more so in Japanwhere the cooperative movement is strong, CCB is renowned.

Within the Bay Area itself, for an energetic segment of the membership,CCB was the anti-establishment symbol of consumer power, a rallying placefor those opposed to the exploitation of the common people and minorities bythe American economic system. CCB afforded activists and the disenchanteda channel for flaunting their democratic rights, hassling the old guard andtweaking the nose of the power structure. These supporters ran the gamutfrom 100% CCB shoppers who could never step into "Lucksafe" without apang of guilt to nonshoppers Simply in need of a cause.

For another segment, CCB was a neighborhood enterprise to which itwas traditional or fashionable to belong. There members met friends andpeople of like persuasion, and they appreciated CCB's honest, healthful mer­chandising practices and democratic approach. They came from the well-edu­cated and liberal university community, from church groups imbued withsocial conscience, and from the working class comfortable with CCB's pro-la­bor policies. There were ethnic groups like the Finns who had been reared ina co-op environment, Japanese-Americans who immediately after their arbi-

24

trary World War II internment by the American government found CCB oneof the few friendly local employers, and blacks to whom CCB extended awelcoming hand.

All of them likewise formed a range from 100%CCB shoppers to thosewho succumbed to the blandishments of Lucksafe specials, their more conve­nient locations, or whatever. Shall we say that some were lazy idealists? I pain­fully recall a university professor confiding sorrowfully to me that his wifedidn't always shop at CCB because she felt Safeway had lower prices, quickercheckouts and cleaner stores. Admittedly, there was a basis for that kind ofcomplaint but often it stemmed from the unreasonably high expectations thatare part of a traditional family syndrome. What is excusable for an outsider isout of bounds within the family.

Still others barely tolerated CCB, associating it with a radical fringe ofnoisy agitators lacking business sense. They cringed at petition tables in frontof the stores and stormy calls for boycotts of goods made by companies withallegedly unfair labor practices, racial and sexual discrimination records, poorenvironmental practices, or war production contracts. CCB was an easy ideo­logical witch hunting ("red baiting") target during the days ofstrong anti-com­munism in the 1950s. Beginning in the] 960s, CCB debates and actions fre­quently reflected what was happening in the political arena of the City of Ber­keley, which had gained fame as the American city with its own foreign policy.The City Council was not shy about making pronouncements on EISalvador,Nicaragua, Lebanon, South Africa, and other global hot spots where bitterstruggles were being waged on social and economic issues. All this, criticswould add, while the city's infrastructure was crumbling with potholes in thestreets and schools in financial disarray.

Naturally, a considerable overlap existed between these groups, as wellas with others of various thinking and bent. Within Berkeley itself possibly,but certainly in the outlying areas, a "silent majority" gave only passingthought to the social significance of CCB. The frenzied pace of urban life didnot afford everyone the luxury of time and energy to attend membershipmeetings, volunteer for committee work, or participate in never-ending ral­lies to reform the community or remake the world, sympathetic though theymay have been to cooperative ideals. Minority rule by default often occurred,one of democracy's recurring maladies.

Characterizing CCB's complex persona is not unlike the case of the pro­verbial committee of blind persons standing around an elephant, each oneprojecting his or her idea of the animal based upon the part that person's handwas touching. That is exaggeration, but we had an identity crisis. Our gameplayers and the membership had differing opinions of where to draw the linein going afield from the nitty-gritty business of procuring and selling merchan­dise to making statements on consumer, health, environmental, community,

25

and political issues. Here the seeds of dissolution were sowed, and the saga ofself-destruction began.

The strength and energizing of a democracy, it is said, lie in the fermentof diversity within the populace and the dynamism of their beliefs. A neces­sary ingredient, however, is a willingness among people, diverse as they are,to tolerate and respect the feelings and opinions of others around them. It isimportant not to alienate neighbors who see things somewhat differently,whether they are more radical (progressive?) or reactionary (moderate?) thanyourself.

For a democratic society to be viable, there must be fundamental agree­ment on basic rights and goals, and we were never too sure of that in CCB. In1978, while I was heading an interim management team, I met informally atthe home of education director Don Rothenberg with a small group of the"progressive" leadership in an attempt to build a bridge between CCB fac­tions. To my assertion that, "After all, we're all agreed on the basic reasons forCCB's existence," a militant ex-president retorted, "I'm afraid you're wrong,George."

Co-op Growth

By the close of its first two decades in 1957,CCBmembership had mush­roomed to 9,000.The University Avenue Center, with its supermarket, hard­ware-variety store, and service station, was operating successfully and the firstmajor expansion to Walnut Creek was beginning to click. Plans were afoot fora second store in Berkeley that would materialize as the Shattuck AvenueCenter, destined to become the jewel in the crown.

Under the leadership of president Robert Aaron Gordon, general man­ager Eugene Mannila, education director Emil Sekerak, and a host of other layand employee stalwarts, business was pursued aggressively and efficiently.The education and member relations program was second to none. CCB's in­novative ideas like its home economist program and kiddie korrals werewidely hailed. Morale was high. Patronage refunds peaked to an unbelievable4%. Being not so small was still quite beautiful. At times, there was an illusionthat everything touched by CCB turned to gold.

Large as the membership was and still growing, a neighborly presencepersisted. The leadership and the general membership mingled easily on afirst-name basis. Unanimity of opinion was not always the rule, but once deci­sions were made, they were accepted in good grace by dissenting parties. CCBhad made some ill-advised moves in the early years, such as not purchasingan adjoining lot on University Avenue (that became the Homer Lee Nursery)in 1942 for the modest sum of $2,000 and again in 1946 for not much more.That severely impeded the mother store's expansion in 1953,1964,and 1974,

26

with the price of that property escalating beyond reason to six figures. The twosmall satellite stores of the WW II years were also failures.

Later, the potential of the 1959 Shattuck center expansion was grosslyunderestimated. Property additions were passed up and facilities underbuilt.CCB bent over backwards in its centers to provide space and services for sat­ellite groups and associates, like the credit union, book co-op, funeral society,ecology center, Mutual Service Insurance, and United Nations Association.This sometimes meant higher cost and inconvenience to CCB's own opera­tions. Regrettably, as leadership personnel changed, gnawing frictions some­times developed with the tenants. The overall contributions of these groups tothe co-op community, however, were considerable. The problem was how toresolve differences in a friendly way with mutual satisfaction.

These were minor flaws, however, in the context of the tremendousgrowth CCB generated, a growth that masked some shortcomings. An astutetop staff person quietly noted in the mid-sixties, "Volume hides a lot of faults,"And eventually they catch up with you, he might have added. In 1980,CCBannual volume reached the $83.6 million high point with pre-tax net savingsof $829,000after years of minimal or negative earnings. Membership roles to­taled 102,500but 30,000of them had moved away or were totally inactive. Atits peak, CCB ran 12 supermarkets plus natural food stores, a hardware-vari­ety, a wilderness supply, pharmacies, service stations, bottle shops, and a gar­den nursery.

The Seeds of Dissolution

A prominent characteristic that began to evidence itself in the 19605among CCB's active leadership was the intensity of an almost self-righteouszeal, a numbing inability to suffer opposing viewpoints without extreme an­guish and bitterness. How that squared with a belief in Cooperation was some­what of an enigma. Do we chalk it up to immaturity or just self-aggrandize­ment? Or was it simply a reflection of the times dominated by the ominousshadow of the distressing American misadventure in Vietnam? Perhaps it wasinescapable in Berkeley where the so-called "Free Speech Movement" andsitdown strikes at the University of California had achieved worldwide noto­riety. In any case, an insidious adversarial cloud soon pervaded the entire co­operative.

A few attempts at reconciliation by the more temperate leaders provedabortive. Once the director of Canada's Cooperative College was broughtdown to conduct a series of sessions for the express purpose of creating con­structive dialogue among opposing board members. The hardliners amongthe progressive activists showed up only for the first session, at which theyparticipated nominally, leaving the others thereafter just to talk to themselves.

27

It wasn't clear whether they had other pressing engagements or just regardedthose sessions as unproductive and futile.

The principal casualty of divisive membership and leadership wassound business practices. "A co-op that is not run first and foremost as a busi­ness won't be around long enough to start any kind of revolution," PhilKreitner declared at the 1977 "Wind Through the Pines" symposium of thebudding "new wave" co-ops, held in Austin, Texas. Co-opers uncomfortablewith that emphasis preferred the other side of the coin. Like Dr. ToyohikoKagawa, they were convinced that a cooperative dedicated solely to businesswould lose the larger vision concerned with peace, justice, and generalmoral-and for some, religious-principles. If the business was not run firstand foremost as a co-op, they wanted no part of it. There appeared to be noacceptable middle ground at CCB.

Among the consequences of political turmoil was the inability to attractand retain top managerial talent, resulling in a rapid succession of top person­nel changes with the inevitable waste of time, energy and progress towardsCCB's stated goals. We were continually reinventing the wheel. The generalmanager faced the Herculean task of balancing the demands of a lay boardwith business realities and trying to change directions each time the politicalbalance shifted. A posturing board member once chastised management pub­licly for the latter's "temerity" in encroaching upon board powers with policychange recommendations.

Under the guise of promoting an egalitarian business organization,board members with pro-labor blinders invariably sided with the rank and fileor lower management in disputes with supervisors. Upper managementwould be characterized as dictatorial and arrogant. Once, after a three-monthsearch, when a qualified black applicant for officemanager had been selected,a reversal was ordered because of pressure from the board for affirmative ac­tion, this time on behalf of women.

A less qualified woman applicant was hired, who turned out to beheavy-handed and paranoid. Several office employees were on the verge ofquitting. It was my responsibility to terminate this officemanager, who in tumappealed to an all-woman personnel appeals committee. That committee or­dered reinstatement, even though it was not in the best interests of the employ­ees on the lower rung. The board eventually overruled the committee aftersome tough talk by top management. The person fired was Sara Jane Moore,who a year later gained her 15 minutes of spotlight and fame by attempting toassassinate President Gerald Ford in San Francisco. Hearing that news on TVwhile I was in Chicago for a conference, I thought, "There but for the grace ofGod go I."

CCB's future planning stuttered badly. The already slow and involveddemocratic decision-making process was further stalled by internal bickering

28

and protracted disagreements. There was a lack of continuity in efforts to ob­tain the kind of financing needed for improvement of facilitiesand expansion.CCB had to resort to a sale-leaseback deal to replenish its depleted capital. Nolonger could CCB rely on earnings from which reserves would be retained andpatronage refunds plowed back into shares by members. Proposals were re­peatedly rejected to increase the absurdly low membership joining require­ments of one $5 share and a $1 fee.

Staff demoralization led to further breakdown of discipline and precipi­tated the departure of capable employees. Perhaps an effective ongoing em­ployee training program or quality circles like those pioneered in Japan mighthave ameliorated the situation. At the membership level, those tired of com­plaining about deteriorating store conditions and strident internal dialoguereduced their shopping or stayed away altogether.

Business Decisions in the Supermarket World

Outside competitive pressures also took their toll. The supermarket in­dustry was one of the most competitive in the U.S.,and certainly so in Califor­nia. CCB's competitors were giants with deep pockets. Their aggressive man­agements could preempt choice locations and afford to sit on them until theybecame profitable. They had little difficulty in obtaining capital to remodeltheir facilities,update equipment and open new units. In their large stores theycould broaden product lines into high margin nonfoods to offset the industrytrend of sagging gross margins. Their buying power and integrated produc­tion gave them lower costs and enabled them to employ predatory pricing.

Their multiple stores made possible area-wide advertising programs todevelop a low-price image. They had no compunction about adapting CCBinnovations into their own merchandising to give the impression of consumeradvocacy without the cost burden of in-store personnel like the CCB educa­tion assistants. They had access to sophisticated data processing programs foraccounting, purchasing. warehousing, and merchandising. Byconstantly ex­panding, they kept their average wage costs lower, since new employees en­tered at the apprentice level. Inexorably, they drove independent merchantsinto mergers, sell-outs, or closings, because the Federal Trade Commissionunder the Reagan administration no longer effectively policed monopolisticpractices.

It was not a level playing field on which CCB was battling toe-to-toe withthe food chains. The name of the game was volume and economy of scale.Theindustry standard of a 1-2% net income was megabucks for the supermarketprivate entrepreneurs who concentrated on return on investment and zeroedin on marginal income. For CCB, which in the early years attracted memberswith patronage refunds based on return on sales, that same small marginal net

29

income served only to depress the patronage refund rate. A 1-2% refund onannual purchases of $2,000 was $20-$40, just a modest bonus. And by the 1970sthe patronage refund had petered out completely, except for those few yearswhen CCB took advantage of strikes against the major food chains. CCB wasexempt from union picketing because it had agreed in advance to accept what­ever settlement terms were reached in the collective bargaining process.

Instead of trying to keep up with the [oneses in the supermarket world,some felt thatCCB should seek its own niche. They said give the members andthe community a simple but nutritionally sound grocery program in the con­sumers' true interest and carry on most of the education work on a volunteerbasis. That concept received little consideration, perhaps because it had theovertones of retreat.

The Ups and Downs of Expansion and Contraction

The early policy of CCB was to grow slowly but surely on a pay-as-you­go basis, owning rather than leasing. This changed suddenly in 1962with thepurchase of the five-store Sid's Stores ina closed board meeting without mem­bership approval, a process that came under fire from some segments of themembership. The seller had refused to become involved in protracted publicdiscussions and negotiations. Although the deal provided a plum in the Tele­graph store, some of the others were lemons whose leases were difficult tomarket later. It was a mixed bag that changed the entire complexion of CCBoperations in one fell swoop, yet undeniably offered great opportunities thatunfortunately didn't live up to all the rosy expectations.

The mid-seventies purchase of the three inner city Mayfair stores inOakland was a flawed judgment. The board under "progressive" control feltan obligation to serve the low income neighborhoods of Oakland. The NorthOakland store purchase was predicated on a "bare bones" type of operationwhen pro forma statements were prepared to forecast its viability, particularlybecause it was so close to the full service Telegraph Avenue Center. Once thestore opened, however, management caved in to charges of discriminationand reverted to the conventional supermarket format which would never al­low the store to cover its overhead expenses. Even after several years of dis­mal financial results, the closing of that Oakland store became a bitter politicalissue and the board was unable to halt the severe hemorrhaging for severalmore years.

Biting the bullet and closing losing operations was a trying task.Management's documentation of a store's inability to be economically viablewould spark heated protests from patrons of that store and rebuttals that itwas all due to mismanagement, inadequate promotion, lack of local input onstore operations, and a "doom and gloom" approach. The discrimination cry

30

would come up, whether it was an inner city or "country" (suburban) store.The board would then vote a reprieve for a drive to build the needed patron­age and reduce excessive operating costs-a temporizing strategy at best. Theclosings were eventually packaged, balancing inner city stores with the sub­urban, including even the El Cerrito Center in 1984,a store that had generallypaid its way. A major sell-off was believed essential to raising capital as wellas cutting losses.

All funds derived from the sale of the stores eventually went down theblack hole of continued operating losses. Although losing operations wereeliminated, the fixed costs could not readily be reduced in line with the vol­ume decrease caused by store closings, and the bottom line remained red. Thealternative of raising shelf prices simply reduced patronage, a vicious circle.The admonition to expand or die became an ultimatum. CCB, however, afterall the closings and property sales, had financial resources for but one last ex­pansion.

That one last chance resulted in perhaps CCB's most egregious mistake.An upscale "Savories" store was opened in the very same Marin site that CCBhad sold to developers. CCB, and most members in Marin, were not ready forthat kind of image change and high cost venture. Despite a squeaky 5-4 boarddecision, including two doubtful ayes, CCB went ahead on a-gamble that farexceeded the projected investment budget and eventually cost upwards of $2million in losses. From that point it was a rapid downhill course.

The mid-eighties also witnessed a disastrous, internecine (obscene, onecould say) battle between CCB and its regional wholesale Associated Coop­eratives, aggravated by personality conflicts. The dispute revolved aroundCCB'5 inability to pay current obligations to AC and its unilateral decision toseek another wholesaler to lower its cost of goods. Whatever the merits of thecase, the failure to resolve family differences in a sensible and conciliatorymanner was inexcusable. The monetary cost was huge, and the damaging ef­fects on organizational relationships and the entire California cooperativemovement was irreparable. After all, CCB provided as much as 80% of ACsvolume. The abrupt lopping off of AC was a major amputation.

The closing of Savories in 1987 because of mounting losses was the cur­tain call forCCR Even though by this time internal hostilities had toned down,the "peace dividend" was meager. The spark was gone and a massive come­back effort had become an impossible dream. The facilities had run down, theboard and staff were discouraged, and the bank account registered zero.Creditors were making hard-nosed demands causing bare shelves, operatingcosts were excessive and irreducible, shelf prices remained outrageously butnecessarily high, and store volume was inadequate because only the diehardsshopped regularly.

31

A last-ditch attempt was made in 1988 to convert to a consumer-workerco-op, but the employees and their unions eventually reneged on their com­mitment. Although many of them professed deep loyalty and attachment toCCB, in the end they seemed resigned to let it die, lose their jobs, and take theirchances on finding employment elsewhere. During the final few years, hadcertain concessions been made in the collective bargaining contracts-notonerous changes-the employees might have staved off what was otherwiseinevitable and provided CCB a slim chance for recovery.

Sayonara

This anecdotal laundry list of shortcomings, errors, and mishaps, attimes sounding like a loose cannon, does not readily lead to a summation ofwhat went wrong at CCB. Like the famous Russian wooden doll, there arelayers upon layers. A simplistic answer might be that cooperation fell throughthe cracks and denuded CCB's ability to cope resourcefully with its problems.Yet even with a united cooperative, it would have required exceptional effortsand ingenuity, and perhaps fortuitous circumstances, to have succeeded.

Too many of those involved began to follow their own private agendas.Fatigue set in. In a way, we had the ironic triumph of human failings-e-ego­tism and greed, both material and psychic, in which all segments of CCBshared. The shopping members wanted the best of merchandise at the lowestprices without a quid pro quo. Activists insisted on foisting their ideology intoto on everyone else, regardless of economic consequences. Board membersand committee chairs in their pursuit of prestige and power lost Sight of pri­orities that would assure CCB's survival. Management didn't control marginsand costs, nor did they take certain difficult but necessary actions; a few mayhave been more interested in feathering their own nests. Employees de­manded top wages and benefits regardless of efforts or results.

In a perfect world, co-ops will prosper forever. In our real world, theystruggle for existence. Although CCB is now in the past, those of us who weredeeply committed have the satisfaction of some memorable accomplishmentsachieved by working together with a large number of noble individuals de­voted to the cause of democracy, justice and peace. We can view our co-op'sexistence as part of an ecosystem in which flowers bloom then wither, givingoff seeds that will germinate and start a new cycle of growth.

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CHAPTER V

By Helen Black

•••••••••••••

A HomeEconomist'sPoint of View

Shewas a Co-opHome Economist from 1964-1986.

W hat did we do wrong? This is the question we all ask ourselvesabout the recent collapse of the Co-op, or CCB, the ConsumersCooperative of Berkeley.

My viewpoint is that of a home economist employed by CCB between1964and 1986.Working as part of the Education Department, the home econo­mists provided consumer information to shoppers and advocacy of consumerissues as well as some quality control. The program was already well estab­lished and highly respected by 1964, largely because of the efforts of our firsttwo home economists, Mary Gullberg and Betsy Wood. Though I had beentrained as a hospital dietitian, when the opportunity came to become a CCBhome economist, I jumped at the chance. Having lived in the University Stu­dents' Cooperative during my college years in Berkeley, and having been amember of CCB since 1943, I was quite familiar with cooperatives.

Both Mary and Betsy consulted with me in writing this article. We allbelieve there was a serious ambivalence within CCB regarding goals. We seethis as an important reason why CCB gradually lost its strong position in theshifting marketplace of a changing society. The home economists experiencedthis problem firsthand because one prime example was a vacillation aboutconsumer education and advocacy. There was a lack of support for and evenoutright opposition to the consumer education program from within the or­ganization, yet the program functioned well and inspired great confidencefrom shoppers.

This uncertainty towards the home economist program isan example ofCCB's major malady: the inability to resolve conflicts, identify and agree ongoals, then work together to achieve them.

33

The Co-op and Changes in Society

To gain some perspective into CCB's problems of survival, it is worthmentioning some of the great social changes that took place in the last severaldecades.

One that tends to be overlooked has to do with changes in the grocerybusiness that accelerated after World War II. During the 1940sand 1950s, thenumber of supermarkets greatly increased, with their large variety of foodsand nonfoods, self-service, and other innovations. These stores increased innumber as smaller, old-fashioned, independent stores were pushed out ofbusiness. CCBgrew during that period. By the early 1960s,however, the num­ber of supermarkets was not increasing and the smaller stores were mostlygone. Supermarkets then started competing more against each other. When Istarted work for CCB in 1964,we were already experiencing serious competi­tion from Lucky and Safeway. By the time I left in 1986, we were competingnot only against Lucky and Safeway, but also against several nonunion inde­pendents who specialized in providing excellent produce.

There were other, profound changes. One was that many more womenheld jobs.This depleted our supply of competent, eager volunteers to work oncommittees and projects, and we had to choose from people who tended to beideologues. It also resulted in changes in food habits, such as more eating inrestaurants and greater use of prepared foods. There was the rise of theyuppies-people who indulged themselves, wanted more gourmet foods, anddisdained the homely virtues of being economical, even while complaining toCCB if prices were too high! Concurrently, there was an enormously increasedinterest in nutrition and health. After I retired from CCB in 1986,the consumerinformation program became almost exclusively about nutrition. The cost offoods, or product information, or information about nonfoods were rarelymentioned. The interest in nutrition was accompanied by burgeoning sales offood supplements, many of which were unnecessary and sometimes evendangerous. It was difficult and controversial to combat this trend. The con­sumer movement which started to accelerate in the 60s,crested in the 70s,anddeclined in the 80s. But the activism of the 60s resulted in an increase in thedistrust of authority (that ofCCB as well as government) and a move towardsgrass-roots control. This seemed to increase the number of issues and the for­mation of groups taking sides on issues. It had the effect of splintering ratherthan unifying CCB.

Our Consumer Education Program: Its Role and Effectiveness

The most important purpose of this program was to provide shopperswith the information necessary to make intelligent buying choices. Such infer-

34

mation, by definition, must be accurate and complete. The latter term distin­guishes information from advertising, which may be accurate as far as it goesbut is not necessarily complete. So in providing information, it is not accept­able to say only positive things about products; any negative aspects must bepointed out too.

For example, one could say that apple juice is 100% juice from pressedapples with nothing added. But to complete the information, one must alsosay that apple juice is oflow nutritive value, not much better than a soft drink,and not a suitable substitute for milk for a child. When we said such things,we were criticized by staff members who thought it would decrease sales. Butthat kind of information was appreciated by shoppers and itwas crucial to ourrole as home economists to provide it.

Information was presented in different ways. There were exhibits in thestores on subjects ranging from cost comparisons of dietary protein to how tohandle hazardous household chemicals to how toelean and cook squid. Homeeconomists had food tastings each week in the stores and answered shoppersquestions. Fact sheets were distributed. Part of the time a home economist wasin the main office to answer questions by telephone. Articles on various con­sumer or nutrition issues appeared in the weekly Co-op News. Product infor­mation was an especially valuable service, made available through our sup­pliers.

Home economists also acted as advocates of consumer issues on regula­tory and legislative levels. Mary Gullberg testified as an expert witness at hear­ings in Washington, nc. Home economists worked with legislators, nutri­tional scientists from the University of California as well as CCB members topass a state law requiring the enrichment of refined breads and cereals, on thefederal Fair Packaging and Labeling Act, and on Food and Drug Administra­tion regulations for the nutrition labeling of foods. Over the years, around 100written and oral comments on consumer issues were prepared by CCB homeeconomists.

There were some other functions. One of our home economists workedin an employee training program for a period of time, explaining the CCBconsumer education program. We assisted in maintaining quality control,channeling complaints on products back to the warehouse, and sometimes didstore inspections for sanitation, etc. For many years, a home economist alsoserved as consultant for the grocery buying committee, providing technicaladvice on new products. Many an inferior product never reached our shelvesbecause the home economist on the buying committee recognized the label asillegal, or the quality as too poor to satisfy our shoppers.. Was the program successful? lfsuccess means being popular with mem-ers, the answer is yes. This is shown bysurveys of the membership conductedariously by outside firms or by CCB itself and reported in the Co-op News.

35

Also, members expressed appreciation for the service frequently and stronglyto home economists in the stores and in letters to the Co-op News; we concludedthat the program met the needs of the membership. Furthermore, the programhelped to develop member loyalty. There were two reasons. One is that be­cause home economists "told it like it was," explaining both sides to a ques­tion, members trusted our information and trusted CCB for giving it to them.Advertising is pervasive in the marketing of foods in America. It is one-sided,often outrageously over-stated, and indifferently regulated. Our informationservice countered advertising and shoppers repeatedly told us how deeplythey valued this. Secondly, advocacy of certain consumer reforms in the 60sand 70s gave a unifying sense of purpose to CCB members and Education De­partment staff. These reforms included the Fair Packaging and Labeling Act,the Nutrition Labeling Regulations, and the Enrichment of Refined Breads andCereals. We worked together to bring aboutthese reforms and had a feeling ofpride in our accomplishments.

If success means increasing sales, the answer is not clear. Usually, therewas not the time or money for careful evaluation of our programs. Sales weretracked in the case of the "Cereal, Champion of Breakfasts?" project, whichinvolved classifying breakfast cereals as to nutritional values in an insert in theCo-op News. Eventually, the cereals were rearranged on store shelves by thesame categories. The Recommended whole grain unsugared cereals increasedin sales volume, while the Not Recommended highly sugared ones declined.An issue that received much publicity was that of the killing of dolphins dur­ing fishing for light meat tuna. When white meat tuna and bonito were iden­tified on our shelves (and in the Co-op News) as not threatening dolphins, salesof those products went up.

But if success means having the wholehearted support of manage­ment and employees, we failed. We were often seen by employees as a finan­cialliability. The problem was that providing good information inevitablymeans that some negative comments have to be made about products. Thiswas seen by some employees, both rank and file and management, as being inconflict with their goals of increasing sales as much as possible. This attitudewas shared by some board members and by some center councils, who pro­tested to the general manager. At One time we were ordered by the generalmanager not to make such comments; we considered this unacceptable andunethical and prepared for a confrontation that never actually came about.There remained, however, the troubling divisiveness. In my 22 years as a CCBemployee, this conflict was never resolved. Many employees never appreci­ated the tremendous credibility the information program gave to CCB. And,CCB was never able to steadfastly and clearly affirm a policy of providing sud,information. Hence, we were like those two donkeys in the Co-op Movement:poster, pulling in opposite directions. .

36

What Might Have Been

In the view of some, CCB lost its identity because it tried to respond to somany opposing goals. The advocacy of controversial issues had a divisive ef­fect; while some of these were consumer issues (such as water fluoridation),most were political. The boycott of nonunion grapes was one which drewmany people to CCB while it antagonized others so much that they stoppedshopping at CCB. In the early 1980s, the dispute over carrying Chilean fruitpitted those wishing to boycott the repressive Pinochet regime in Chile againstshoppers wishing to buy the fruit together with produce employees who sawa ban as putting CCB at a serious disadvantage with competitors. With opin­ion so sharply divided, any decision CCB made was bound to antagonizesome groups. Members frequently abandoned CBBwhen a favored issue wasnot supported.

In contrast, when the issues espoused were clearly consumer issues,more wholehearted support within the membership could be developed. Inretrospect it appears to me that in the '60s and early 70s, there were more suchissues. Later, issues tended to be more controversial.

The divisive effect of controversial issues might have been amelioratedby taking less drastic action. Instead of products being dropped by CCB buy­ers because of protests, or actually banned by board action, we might have lim­ited ourselves to providing pro and can information posted in the stores nearthe products and explained in the Co-op News.

Our splintered organization needed more; it needed to be united bycommon goals. Our membership had responded strongly to CCB's consumereducation and advocacy; we think that CCB had a role to play in serving con­sumers, beyond being a good grocery store, and that this was the unifyingforce that might have saved us. The consumer education program was trustedby the membership even during the times when there wasn't much trust.Moreover, the uniqueness of the program derived from the uniqueness ofCCBitself; it would have been highly appropriate for all of CCB to solidly supportits consumer role.

But whatever binding goal might have been our salvation, we didn'thave it. We needed strong agreement on our values at all levels-board, man­agement, employees, members-just to counter the pressures of vocal activ­ists, just to be able to focus on attainable goals. We didn't have that kind ofagreement.

jI

'1V' _37

CHAPTER VI

By Robert Schildgen

•••••••••••••

Failure FromNeglect of Co-opPrinciples

Mr, Schildgml1as special ties to Japanese co-ops because he is theauthorof tuedefinitiveAmericanbi­ographyofToyohiko Kagawa (Tuyohiko Kagawa: Ilposfleoj LOVCl1l1rl Social [ustice), Schildgcl1 haspub­fished maltyarticles all co-ops in uaricus magazines, and wasco-editor atCCS's Co-op Newsfrom 1978to 1985. Healsoseroed all theCCB Board of Directors ill 7986and 7987. Heioas thefirst co~op schofar­ill-residence at Oberlin College in Oluoand is wrrcntly senioreditorat Ctiina Books and Periodicals illSail Francisco.

M any of the explanations of CCB's decline focus on 1) external cir­cumstances, such as intense competition or demographic changes;or 2) internal circumstances, such as excessive wage costs, deci­

sions for unwise expansion, or divisive factions in the cooperative. On thesurface, such explanations are plausible. But they do not examine what mis­takes CCB made specifically asaco-op. After all, allYbusiness may fail for thesereasons, whether co-op or capitalist, and thousands do fail, every year. Allbusinesses, m-op or capitalist, must grapple with these problems, and all busi­ness schools teach us how. But very few if an y business schools teach us howto deal with those economic and cultural problems that are specific to co-ops.Co-ops must still learn these things mostly from each other, and if co-ops hopeto learn anything new from CCB's dismal experience, they must understandwhere CCB failed as a co-op.

A closer examination indicates that the underlying cause of CCB's de­mise was its neglect of cooperative principles. The more obvious causes of CCB'scollapse can be traced to this fundamental problem. In fact, neglect of prin­ciples became so serious in the later years that CCB had, in many respects,

. ceased to bea co-op.

~Of course CCB still had a structure featunng the cooperative principles

of emocraric control, sharing of net savings, member ownership, education,open membership, and cooperation among co-ops. But It was no longer a vital

~) ocrnoc=., "<P"'.'"m, ,,"" "",,,,,, ,~, '"_'-",oc.,.,;"" "

"" 39

40

enough understanding of cooperation to sustain three separate centers. Theyalso contended that the facilities under consideration were not adequate forCCB members. Most other facilities designed and built by CCB had been con­ceived of as multi-purpose community centers, with space for child care, meet­ing rooms for members and community groups, offices and facilities for otherco-ops and affiliates such as the credit union. They were seen as serving a so­cial as well as an economic need.

These were serious objections, coming from experienced cooperators,and they expressed a collective wisdom cautioning against ill-conceived ex­pansion. Yet this wisdom was not fully respected, and many members feltthere was too little public discussion of the issues, because the board was ea­ger to conclude the lease agreement. Some members objected to this process,complaining that the decision was arrived at too hastily and with all too littleconsultation with the membership.

From a superficial point of view, the decision was "democratic," in thata democratically elected board made the decision. But the experience showedthat merely electing officers and delegating them to make decisions does notnecessarily make for effective democracy. It is only the first act in a democraticprocess. For cooperative democracy to function fully, people should be em­powered through a process that involves participation and communication onmany levels. Genuine cooperative democracy is a give and take process in­volving discussion, lobbying and a respect for the opinions of the membership.In arriving at the decision to expand, the board not only failed to take full ad­vantage of that social power, but chose to neglect it. I say "take advantage ofsocial power," because the colJective wisdom of a cooperative is often fargreater than the wisdom of a board. The principle of democracy means thatthe membership isa co-partner. When the leadership starts to regard the mem­bers as anything less, it begins to treat them as objects, and begins imitatingthe capitalist relationship between enterprise and consumer, creating whatconsumer advocate Ralph Nader has called a "seller sovereign" rather than a"buyer sovereign" situation.

This episode demonstrated a weakening of cooperative democracywhich had actually been taking place for some time. The percentage of mem­bers voting in elections and the number of people running for the board andother offices and serving on committees had been steadily dropping since themid-1960s. In 1967 the organization had 39,000 members and almost 25%voted in the annual board elections, choosing from a crowded field of 15 can­didates. Fifteen years later, a mere 10%, or 11,000out of a membership thathad swollen to over 100,000, managed to vote among only six candidates.

Clearly the cooperative had a much bigger pool of talented and activemembers to draw on in 1967 than it did later, at a time when external circum­stances made it much more vulnerable and therefore more in need of that tal-

41

ent. Although there had been a slight decrease-s-down to 20%-in the percent­age of members voting through the early and mid-1970s, there was a steepdrop in the 1978elections, with only 13%of the members voting.

Unfortunately, instead of being alarmed at this and giving it full atten­tion, CCB leaders tended to ignore the problem.

Although the decision to expand was reached undemocratically andwithout sufficient regard for the economy principle, the Oakland stores mighthave been more successful if sufficient attention had been paid to a third prin­ciple: education. However, at about the same time that a massive educationeffort was needed, the majority of the education staff was laid off.So there wasa serious shortage of education personnel to inform the community about CCBat this crucial point.

The Oakland centers operated in the red from the time they wereopened; and by 1978,the board decided to close two of them. However, in onecenter the community erupted in protest, demanding that CCB remain in thelocation. Nor were they alone in their desire to keep the site open. CCB mem­bers from other locations thought this store still had potential, and they werewilling to give it another try. The public board meetings were packed, as mem­bers and community leaders mounted a campaign to persuade the board toreverse its decision. The board relented and allowed the store to stay open onthe condition that it reach a minimum sales volume. The local members re­sponded with a neighborhood campaign, and for the first few months, thestore met the sales criteria.

On the positive side, the board did respond to its membership in keep­ing the store open. In making this decision, the board also respected the prin­ciple of economy, because it set a measurable performance standard. It wasmade clear that the large losses could not be subsidized indefinitely by thecooperative. At this point too, some extra effort was being expended in anotherarea of cooperative principles: there was an attempt to persuade more resi­dents to shop at the store. However, none of this was the type of educationwork that develops long range loyalty or an understanding of cooperativeprinciples, goals and values. It was more on the order ofdoor-to-door canvass­ing, which has short-term effectiveness but cannot build cooperative con­sciousness or loyalty because it does not actively engage members in co-opacti vities.

After a few months of initial excitement, there was no sustained atten­tion either to the principle of economy or to education at this location over thenext five years. In less than six months, the store's volume slipped below theperformance standard set earlier, but the board allowed it to remain open. Thestore bled on for another four years, losing over a million dollars, before it wasfinally closed.

Oakland was by no means the sole cause of problems. A decline in co-op

42

education was weakening CCB at all its locations. For many years, there hadbeen a full-time "education assistant" in each of the stores. These employeesusually staffed an education booth, offering brief explanations of the coopera­tive to prospective members, doing community relations, coordinating vari­ous member activities at each center, and generally providing a link betweenco-op and community. Yet the board and management considered these edu­cation personnel expendable, and in the summer of 1978all of these educationassistants were laid off, purportedly to save money. At the same time, CCBlaunched a costly media advertising campaign, with poor results.

The leadership of CCB at this point basically abandoned the traditionalapproach of educating through person-to-person contact and attempted toimitate the large supermarket chains with conventional advertising. Tn doingso, the leadership not only offended many members and neglected a co-opprinciple, but ignored a basic cultural reality of American life. Corporate ad­vertising in the U'S, is so pervasive and so powerful that it is an intrinsic partof the culture, something millions of people are more familiar with than anyother cultural tradition. All Americans literally have big businesses pro­grammed into their nervous systems (by the age of eight, the average Ameri­can child has spent almost a year of life watching television), The TV jinglesand slogans of major supermarkets float continually through Americanminds, and proofof the effectiveness of this propaganda is that the companiesthemselves spend billions on it.

Because of this propaganda, people moving into an area instinctivelylook for a major supermarket, without even considering the cooperative pos­sibility, which they may very well never have heard of. It is obvious that CCBcould not hope to undo the effects of such psychological conditioning throughadvertising alone. A different approach was necessary, and that was to relyon the power of personal contact-a sort of guerrilla counterattack on the pre­vailing cultural forces which not only Jure people to big chains, but socializethem to feel that the chains are an essential, positive part of their lives. (In fact,one supermarket chain, Safeway, has a famous slogan, "Sincewere neighbors,let's be friends.") The education assistants provided this genuine personalcontact and gave continuity to members' involvement. They enhanced thesocial dimension of community in CCB, a noneconomic element that drewmany people to CCB and a dimension that is as significant as the economic.

One of the most commonly heard complaints in CCB's declining yearswas that it was becoming "justanother supermarket"-and it was the loss ofthe old sense of community that was a major element in those legitimate com­plaints. A particularly unfortunate consequence of the layoffs occurred thefollowing year, when CCB's competitors were involved in a strike. Many non­CCB shoppers poured into CCB stores during this period, but there was noeducation staff to explain the co-op and its policies or even to help with the

43

mechanics of signing up new members. As a result, a rare opportunity to buildmembership was squandered.

There was also a deeper problem with the quality of cooperative educa­tion which had begun even earlier. Serious education of cooperators, as op­posed to merely signing up new members, had not taken place in years. Littlewas being done to build up a base of committed members who thoroughlyunderstood the demands and responsibilities of cooperation and could haveprovided the loyal core of members necessary for success. By the mid-1960s,in this organization that was soon to grow to 120,000members, there was nocooperative library, no organized classes or study groups in cooperation, andonly on rare occasions such as annual meetings were there guest speakers orseminars on cooperatives and related topics. By contrast, in the 194Os, 1950s,and early 1960s, there had been considerable activity in these areas. This typeof activity diminished as the years went by, as the focus became increasinglyon the volume of recruitment rather than the quality of member education. Inthe mid-1960s, the library, which had once been in a local store, was actuallymoved to the corporate headquarters, four miles from Berkeley, even furtherfrom Oakland, impossible to reach by public transit, and appreciably closer toonly two of the twelve supermarkets CCB operated at its peak.

The decline in the quality of education was described by a former boardmember, Anne Dorst, who recalled that prior to the mid-1960s: 'We were ex­tremely careful in educating new members. When I first joined (in 1952) weactually did not accept new members until the person had taken the materialhome and read it. Then, beginning in the 1960s, we seemed to have a newapproach to membership, focused on increasing numbers, not On educatingmembers as to what they were joining and what their responsibilities were."

Though based in a city which boasts one of the world's great universi­ties, CCB was, to put it with brutal frankness, intellectually dead. It had lostthe ability to engage the attention of more than a very small portion of themany gifted and innovative people who continued to shop there and whomight have had the energy and creativity to revitalize it.

As the years passed, there was no serious effort either to improve educa­tion or to use it to invigorate cooperative democracy. Instead, a vicious cyclebegan, with continuing sales slumps forcing additional cutbacks in educationwhich led to further decreases in sales.

The problem of deterioration of democracy was related to the disregardfor a fourth principle, the principle of open membership. Again, as with theother principles, it was superficially honored. CCB had open membership andbarred no one ofany race, creed, or sexual persuasion from joining. However,while the letter of the law was observed, there was neglect in considering thefull meaning of the concept of open membership. Just as democracy meansmore than mere voting, open membership means more than merely allowing

44

anybody to join a co-op. Open membership, in the fullest sense of the word,means being open to one's fellow members. This is another subjective aspectof co-op democracy, one which is always more complex to manage than merepersonnel and consumer relations in an ordinary business. To capture the fullmeaning of this principle, it is instructive, as always, to go back to the Rochdalesituation itself. The Rochdale Society of Equitable Pioneers was founded in atime and place highly charged by both political and religious sectarianism. Asits earliest historian, George Holyoake, pointed out, the 28 charter memberswere themselves a rather disparate group in both politics and religion. Andsome apparently had no politics or religion at all. To have excluded or antago­nized any of the half-dozen sects and factions to which they belonged wouldhave immediately limited the market and created divisiveness within themembership.

The Rochdale pioneers consciously avoided this, and took pains to em­phasize the importance of tolerance in discussion, as Holyoake painted outwith a few pungent examples. This is because open membership meant notonly allowing any individual to join, regardless of beliefs, but tolerating thatindividual's beliefs. This was a social style of tolerance which was very much apart of the cooperative culture the pioneers were attempting to build. It wasexplicitly borrowed from the socialist thought of Robert Owen, who opposedsectarianism and saw as his major goal the creation of a more harmonious,open society.

In its broadest sense, then, open membership means a cultivation ofopen-rnindedness and avoidance of the kind of doctrinal conflicts that can tearan organization apart. It was precisely this type of open-mindedness whichdisappeared from CCB in the 19605. Debates over issues such as consumerboycotts, for example, grew extremely strident and two factions developed.Indulging in increasingly bitter disputes, both factions lost Sight of the over­riding value of the cooperative by getting into standoffs on their own particu­lar agendas, instead of practicing cooperative democracy. By the mid-1970s,CCB elections began to ape American political campaigns, with the co-op bro­ken up into two "parties." Each faction raised money for campaigns and eachsponsored a slate of candidates. The more conservative faction invoked the oldRochdale principle of political neutrality, and misinterpreted it to mean thatthe cooperative could not take a stand on social issues without jeopardizingits neutrality. (Ironically, in dogmatically holding to this position, they exhib­ited the very intolerance which the Rochdale Pioneers had sought to avoid.)The more radical faction responded in kind, pressing its demands in an abra­sive manner and escalating the hostility. The very style of the debates alien­ated some of those members who cherished the idea of cooperation as a formof social harmony. They had had their share of harsh debates too, but therewas a general understanding that the co-op had to maintain a sense of solidar-

45

ity that would override other disagreements.Besides driving some members out of active participation, these polar­

ized attitudes further stunted democratic dialogue. Had sufficient attentionbeen paid to the real meaning of open membership, this schism might havebeen averted. But because of the basic weakness in cooperative education, fewpeople were thinking seriously about the problem. (It is interesting to notehow the cooperative principles are interlinked and how ignoring one can af­fect another. This is especially true of cooperative education-the basic edu­cation which enables members to participate in and reflect intelligently on thecooperative.)

Aside from these examples of the erosion of democracy and education,there were three other crucial points at which the cooperative suffered from aneglect of its principles:

1) The first was in the area of labor costs. As early as 1981,CCB's audi­tors had called attention to the fact that labor costs were out of line with theindustry average in the trade area by a factor of about one percent of sales(which in the American supermarket industry can mean the difference be­tween success and failure). The primary reason for these rising costs was thatin the union contract there was a rather large spread between the wages ofapprentices and journeymen. Under such a contract, a company that is notadding new units, or is in fact closing units, soon finds itself with a larger pro­portion of higher paid journeymen than an expanding operation. This meantthat CCB was caught in a situation of escalating labor costs, because it hadceased expanding and each time it closed a location, the employees lower inseniority were laid off, leaving only higher paid staff. By late 1985, the gapbetween CCB and the industry average had widened to more than five per­cent of sales, meaning that CCB had to pay approximately $2 million a yearmore than a competitor with a similar contract would have paid in wages atthe same locations.

In negotiations, CCB did not ask for concessions from the union whicheven approached this figure. Most members of the board felt (wrongly, in myopinion) that it was inappropriate for CCB, which had a long record of sup­port for union causes, to ask workers for a concession. Traditionally, the orga­nization had always accepted the same general contract as the majorcapitalistsupermarkets in the area. There was a strong attachment to the union causeand an almost reflexive reluctance to engage in any serious conflict with theunion. Moreover, the board was afraid to demand a large concession becauseit feared provoking a strike. (There was a feeling that the financially weak or­ganization could not weather a strike in a strongly pro-union city like Berke­ley-a questionable assumption, as CCB's affiliated credit union had surviveda strike in 1974 and is still thriving.) Because of this reluctance to demand amore realistic wage package, the cooperative went into negotiations in 1986

46

asking for only a $500,000adjustment from the standard contract, and receivedeven less in concessions from the unions.

This failure to fight for a wage package that would put the cooperativeon a par with its competitors was the ultimate betrayal of the cooperative prin­ciple of economy, because it basically subordinated the members' economicinterest to the interest of another group. Instead of tackling the labor cost prob­lem early on, the leadership covered operating losses by selling property andleaseholds. Between 1978and 1986, three sites worth over $6 million were sold.The cooperative was in effect transferring the assets of the members to its staff,by selling off assets to pay wages. There can be no clearer abdication of theprinciple of economy for the members than this. Even in the worst case sce­nario, a decision to declare bankruptcy because of a lengthy strike would haveat least preserved some of the substantial equity which the members had builtup in the cooperative over its 50-year history. Again, faulty education comesinto play. There had been little effort over the years to give cooperative educa­tion to CCB staff, and the majority of employees remained as alienated fromCCB as they would have been from any other employer. Many employeeswere not even members, knew nothing of co-ops, and related to CCB as theywould have to any other supermarket employer. Had the employees knownmore, both of CCB's purpose and its problems, they might have been bothmore productive and more willing to help develop a solution to the wageproblem.

2) In 1984, there was another example of a profound neglect of both thedemocratic and economic principles. A CCB-owned site in Marin County,across the bay from Berkeley, had been sold because of its persistent losses.CCB management then proposed opening a smaller, "upscale" store to beleased at the same location. The cost of setting up this new operation was pro­jected to be $600,000. The idea was to do some innovative marketing, chargehigh prices, and make money from an affluent clientele in one of America'swealthiest counties. To put it in the crudest terms, the management saw a largecontingent of "yuppies" and believed a profit could be made from their will­ingness to purchase gourmet foods at a premium price. The conception itselfwas completely capitalistic and predatory, though it did contain a rathertwisted element of the old Robin Hood sentiment of robbing the rich to give tothe poor. The antithesis of cooperative economics, it was a seller sovereignapproach of going out, creating a market, and making money from consum­ers, rather than developing services for consumers. Worse yet, there had beenno demand from members in the Marin area for this type of a store, and in­deed some objected to it strongly, as being non-eooperative and not somethingtheir community wanted. A very basic element of the principle of economy isthe emphasis on thrift in a cooperative, thrift in the broadest sense ofavoidingpredatory marketing practices which extract money from consumers for

47

profit. And CCB had built a national reputation by teaching consumers howto avoid wasting money on uneconomical or unhealthy purchases. Yetextract­ing profit from consumers was precisely the technique applied in this venture.

As might be expected, there were some members who questioned thewisdom of returning in a new format to a location which the cooperative hadrecently sold because it was not successful. These members felt that the wisestcourse of action was to use CCB's limited resources to strengthen remaininglocations rather than embark on a new venture.

However, by this lime in CCB history, the level of active participationwas so low that these objections were not expressed forcefully enough by alarge enough group of members. In the end, at a meeting attended by less than50 members, the board voted by a five to four margin to embark on this ven­ture, which turned out be a greater disaster than even the worst pessimist hadpredicted, losing as much as $60,000a month.

3) During this same period, CCB became involved in a complex and bit­ter dispute with Associated Cooperatives (AC), a wholesale owned by about20 California co-ops. At its peak, AC did about $55 million in sales per year,but because CCB was its main customer (65 percent of its volume) it was se­verely hurt by CCB's retrenchment. At the time problems arose, CCB had overa million dollars on deposit with AC. Far behind in its payments to the whole­sale, CCB proposed using this deposit as a payment for goods. AC, however,did not regard this money as a mere deposit, but as an equity investment inthe wholesale, and therefore insisted that CCB pay the more than a milliondollars it owed. Negotiations between the two cooperatives broke down, andthe matter went to court, which ruled in ACs favor. The legal battle turnedout to be an ugly public display of the complete breakdown in a fifth co-opprinciple: cooperation among cooperatives. Indeed, the only one of the six inter­national cooperative principles which had not been ignored or violated in thedecades of decline was that of limited interest on share dividends, but CCBwas hardly in a position to flout this one, because it hadn't been able to paydividends during this period anyway.

In conclusion, while the surface explanations of this sad story are cer­tainly plausible, the deeper roots of CCB's problems were in the failure to in­culcate and study cooperative principles and arduously apply them to day­to-day operations or the crucial decision-making process. Indeed, CCB haddrifted so far from democratic control and from even perceiving the very needto engage people in democratic activity that major decisions were being madeby a handful of officers elected by a small percentage of the members. Theproblem was further aggravated by the fact that leadership sometimes com­pletely lost sight of the principle of economy, allowing itself to be swayed byconcerns and interests which were directly and strongly at odds with this prin­ciple. Violation of the spirit of open membership led to a divisiveness and dis-

48

affection which further weakened both the organization and its democracy.At the heart of the problem was lack of education, which resulted in a lack ofinvolvement and a dearth of members thinking seriously about what a co-opis, what its specific needs and problems are, and how co-op principles shouldbe applied. The reason members complained that CCB had become like othersupermarkets was because elected officialsand management had forgotten thebasic operational and social features which make co-ops different in the firstplace.

There is no doubt that because of the intensity of the competition, thediversity of the community, and the complexity of the clashing interests, anurban supermarket co-op of this size is more difficult to manage than a singlepurpose co-op, such as a credit union. But the sobering lessons learned aboutapplying co-op principles are relevant for any co-op, any time, anywhere. Theexperience at CCB makes it plain that attention to principles must consist ofmore than merely learning the Rochdale catechism <though too many Ameri­can co-ops don't even require this minimum knowledge). Attention to prin­ciples should involve continual study and investigation of what they mean,both in their historical roots and in how they might be applied to concrete situ­ations in a modem co-op_

49

.: T i' i

/,

f

50

CHAPTER VII

By Lynn MacDonald

•••••••••••••

An UnsuitableJob for aCooperative?

From 1973 to 7981 LYIIII MacDonald worked her way from substitute checker to gel/eral /lulJJager (//North CoastCooperative. She t!lel/lIJoved to the BayArea to accept the position of director of dL"VcloJl­men! at Associated Cooperativeswheresireprovided techuicaiaseistancennd numagemcnt consulting toACs member co-ops. For most of "/983 s/1e alsosenxd as education director at eCB. In late "/983. shebecame generalmanager at CCB, a positioll sire held wlfi11986. After leaning CCB sitecompleted {/Mastersof Business Administrationwithhonorsat St. Mary's College. Sheis HOW vicepresident ojsafcsand marketingfor II spl~cialty food mflllll!acfllrer.

O n January 15, 1990, Andronico's Park and Shop, a small grocerychain, opened its fifth and glitziest store at the site of the formerlyphenomenal Shattuck Avenue Co-op Center. As crowds thronged

in to view the newest addition to Berkeley'S so-called gounnet ghetto, manyremembered the fanner Co-op store but relatively few mourned its passing.Once Consumers Cooperative of Berkeley (CCB) was the heart and soul ofBer­keley: CCB was the only place for Berkeley's multitudes of politically con­scious and correct consumers to shop. And yet, when the warning sounds ofthe final days of CCB were heard, few carne to its aid. By 1986, all but a hand­ful of members were willing to let CCB go by the wayside with other relics ofBerkeley's radical past.

Much has been and will be said and written about why, who, where, andwhen CCB failed. I would like to step back from the personalities, the specificmanagement decisions, and the conflicts to examine the proposition that theroot of the problem lay in the cooperative structure itself, that the cooperativeby the 1980s was in fact an inappropriate structure to compete effectively inthe U.s. food retailing industry.

The Industry

Let us first examine the structure of the retail grocery industry in whichCCB operated its core business. The economic foundation of CCB's successfrom founding until the 1960s had been based on an environment where inde-

51

pendent retails flourished. However, by the early 1970s, the retail grocerybusiness had become a market share game.

In 1973, independent retailers in the Bay Area had a 58% market shareand numerous chains controlled only 42%. Bythe end of the following decade,however, three chains, Safeway, Lucky, and Alpha Beta, controlled over 60%of retail food sales. Small operators consolidated, went bankrupt, or werebought up by larger chains. Enormous economies of scale began to accrue tothese large chains-in product buying power, in site acquisition, in equipmentpurchase, and in employee bargaining and utilization. As the major partici­pants gained experience, their costs also began to decline. This phenomenon,known as the "Experience Curve," has been widely observed and studied fordecades across many different industries. A graphic depiction of this phenom­enon looks like this:

The chains, by accruing "experience" and volume faster than the inde­pendents (by virtue of more and larger stores), were able to decrease their unitcosts more quickly and thereby increase their profitability.

In general, the chains operated larger stores with broader product lines.The larger format permitted more efficient utilization of labor and a more prof­itable mix of products. In a larger store, management could add high marginnonfood products not included in the older formats and thereby increase over­all store profitability.

Chains built an ever lower cost of goods through centralized warehous­ing and increasing volume. When chains operated over 150stores with a cen­tral warehouse, the buying power and efficiencies were tremendous.

In the I970s, power shifted in the Ll.S, food industry from the manufac­turers to the retailers as the chains realized they controlled what the manufac­turers needed-access to the customer through retail shelf space. The concen­tration of retail shelf space in the hands of a few very large retailers allowedthem to exert tremendous pressures on the cost of goods. The chains began todemand payments from manufacturers for Simply putting a product on theshelf, for advertising monies, for price protection, and for a host of other ser­vices which added up to large monetary advantages to the chains that wereunavailable to smaller retailers. While the theory of the Robinson-Patman FairTrade Act runs that all customers must be treated equally (i.e.,manufacturersmust offer the same deals to the same classes of customers), the practice re­mains that the bigger the chain, the more money it can extract from manufac­turers and distributors. Companies as small as CCB could expect to receivevery little income from this source.

Associated Cooperatives (AC) was established in the late 1930s to meetthe needs of the emerging cooperative businesses in the state of California. Itprovided cooperative grocery stores with their own private label-CO-OPbrand. However, by the 1980s, CCB's unshakeable commitment to its own

52

wholesale actually increased its cost of goods. By1980, fewer than twenty su­permarket-sized cooperative stores were purchasing from AC. But industrystandards at that time required at least 100stores to maintain an efficient ware­house operation. Rather than improving the economies of scale though cen­tralized warehousing, AC actually decreased the stores' profitability by add­ing a cost of goods at 7 to 8% of retail sales rather than the 3 to 4%of the chains.

CCB also found itself losing ground on the labor front. While all majorchains were unionized as was CCB, beginning in the late '70s contract nego­tiations resulted in cost savings available only to expanding businesses. How­ever, the number of CCB employees was contracting as losing stores wereclosed. Not only was CCB unable to take advantage of the lower new hirerates, its workforce consisted entirely of senior clerks at the highest rates of payand benefits. By 1983,CCB average labor costs were $2 to $3 per hour higherthan its chain competition.

In the '50s and '60s, as the chains increased their economies of scale, theywere relatively content to maintain a consistent level of pricing. This had theeffect of creating a price umbrella for CCB and tremendous profits for thechains, which they could use to increase their market share.

CCB experienced some very profitable years during this period and wasable to return substantial patronage refunds to its members. But it was livingon borrowed time and it wasn't watching the clock. As in all industries, pricestend to follow costs based on the business imperative, "Price along the experi­ence curve or lose market share." In the late '70s, as the chains began to ag­gressively seek market share, they decreased their prices and placed an inexo­rable price squeeze on CCB. The chains with lower cost structures could lowerprices and remain profitable. The inefficient independent retailers, includingCCB, began to be weeded out.

As CCB struggled to maintain its competitive position, it found it couldno longer provide many of the services that had differentiated it from othersupermarkets in consumers' minds. The kiddie korrals were closed and con­swners could no longer find a home economist in every store. Because CCBwas no longer operating profitably, it could no longer afford to pay patronagerefunds to the members. As Lucky became the dominant price leader in theBay Area, consumers began to perceive CCB as a more expensive place toshop.

At the same time, Safeway and Andronico's began to usurp another ofCCB's particular niches-a wide variety of food products. These stores addednatural foods, ethnic foods, gourmet foods, delis, and bakeries. CCB was un­able to respond appropriately largely because its major source of capital-theretained portion of the patronage refund-was no longer providing capitalsince there were no more profits. The patronage refund only generated capitalwhen CCB was operating profitably. CCB's smaller and more inefficient stores

53

continued to degenerate as all investment in them was put off until a moreprofitable year.

The Cooperative Democratic Structure

CCB was run by a nine-member board of directors elected by a member­ship of over 135,000.In general, elections are won by a set of skills unrelated tothe skills required for business decision making in a fiercely competitive in­dustry in which one is clearly the underdog. Quick action, mid-course alter­ations, flexible financing, and a clear focus are required to compete effectivelyas a niche marketer. Group leadership at its best has difficulty in maintainingthe entrepreneurial spirit and the mobility and momentum required to be aguerilla marketer in a world of efficient giants.

In fact, democratic leadership lends itself better to a stable environmentrun by a bureaucracy than to a swiftly changing, highly competitive market.Diffused power tends to be conservative and democratic leadership is oftenmore concerned about its public image and electability than today's hard busi­ness decisions. Democracies can be held hostage to minority rights resultingin corporate paralysis when swift bold action is required. At numerous timesin CCB's history, a community outcry resulted in keeping open a losing op­eration far beyond any hope of salvage.

The democratic nature of the cooperative also introduced a host of othernonbusiness issues into the company which hampered efficient business op­erations. CCB was almost schizophrenic as it vacillated between trying to de­cide whether its mission was to achieve social and political change or economicchange. The board was often bogged down with decisions about which prod­ucts to boycott instead of how to deal with rising labor costs or the inefficiencyof the wholesale. Members wanted a "politically correct" co-op, but fewagreed on what that meant in practice. Freedom of choice or restriction ofchoice? Information or boycott? Involvement in community issues or stick tothe knitting? Activists from different sectors of the membership put CCB inthe position of being all things to all people-an impossible dream for any or­ganization. One member proclaimed righteously, "If the Co-op is going to sellChilean produce, I'll shop at Safeway" -which of course sold unlabeled Chil­ean produce and didn't care what she thought about it.

Democratic structures are by their natures bureaucratic and slow tochange. For CCB, this meant among other things an inability to understandthat the wholesale which had been so important in the past for maintainingretail competitiveness had become a drag on CCB in the retailing environmentof the 1980s.It also meant that CCB had no politically acceptable way of deal­ing with the unions which it had always supported but which were now put­ting it into a noncompetitive position. Further, CCB had lost its market nicheand uniqueness. It seemed only capable of calling up the solutions of the 1960s

54

to meet the challenges of two decades later. Kiddie korra!s and home econo­mists were no longer possible. But what would differentiate CCB in the '80s?The democratic structure made it difficult to come up with a new coalescingstrategy.

Another difficulty with the democratic structure in an intensely competi­tive industry was a lack of consistent vision and leadership. Every year one­third of the board was up for election. Two "political" parties dominated theelections with slates of candidates. Control of the board shifted back and forthbetween the two and hence so did the vision guiding the cooperative. Man­agement changed almost as rapidly. From 1976 to 1986, CCB experiencedseven different general managers. The board that hired a given manager wasoften not the same board which was then to work with that manager. Oftenmanagement and the board found themselves painfully at odds, thus furtherpolarizing the membership and the employees.

By the 1980s,CCB was a business woefully out of sync with its industryand chaotic within its own structure. The impact of all these conflicts on therank and file employees was the final nail in the coffin. A general sense of fail­ure pervaded the company. As the years of losses continued, board and mem­bership, and board and management continued to feud, and employee mo­rale plummeted. Employee loyalty turned toward the union which appearedfar more stable than the cooperative. When it came down to a choice betweenthe union and the cooperative, the employees did not have enough faith inCCB.

The corporate culture at CCB was fragmented, uncertain, and poorlyunderstood; the corporate values were unfocused and conflicting. New boardsoften brought in a new set of values to impose on top of, but sometimes inconflict with, the old. In their book, InSearch of Excellence, Peters and Watermanindicated that most successful firms are value driven. CCB often found its co­operative value system in conflict with the value system of the retail groceryindustry. The cooperative value system believed that product boycotts, politi­cal statements and actions, consumer education, and member participationwould attract more customers. The industry value system believed that newstore formats, increased price advertising, clean stores, and product varietywould attract more sales. The clash of these two value systems left the CCBvalue system less and less clear externally and internally. A clear vision andsense of purpose did not exist for membership, board, management, or rankand file employees.

ln the late '70s and early '80s, a new retail format emerged that seemedperfect for a cooperative venture-the club store. Consumers became mem­bers of these clubs and paid annual dues for the privilege of buying a widevariety of merchandise at extremely low prices. The National Co-op Bank hadthe money to fund such large ventures. While a few voices in the cooperativesdid recognize the opportunity presented by the club format, not one consumer

55

co-op in the U.S. came forward with a realistic business plan to take advan­tage of one of the last frontiers of the grocery retailing industry. Infairness, thegrocery industry itself seemed to miss the potential of this formal. While a fewchains mimicked the clubs (e.g., Kroger with its now sold off Price Savers di­vision), the pioneering work and the most successful applications were doneby people outside the industry-Sam's Wholesale Club, Price Club, andCostco.

On page one of the April 14, 1990 New York Times, an article appearedentitled "The fallofBonwitTeller [an upscale U.S.department store]:Did TimePass Chain By?" The similarities with CCB's demise are striking:

'The unhnppy stan)of Bonwit's demise, according toanalysts, isa case ofaretailer thatfirst lost itsedge in marketing andthen became a repeated takeovertarget witheach newowner shifting strategies. The result understandably con­fused customers, who fled toother stores. AndsoBonwit's once-profitable mar­keting formula of catering mainly to affluent, fashion-conscious women wassquandered. 'l don'tmean tobe unkind:said Marvin J. Rothenberg, head oftheretail marketing consulting firm bearing hisname, 'but Bonwit Teller wasdeadforyears, onlynoone buried it."

CCB too lost its marketing edge without clearly understanding why orwhen. Although not subject to buyouts and takeovers, CCB's numerouschanges in management and strategy led to the same lack of focus and consis­tency. CCBmanagement attention (I include both board and line managementin this) was focused on almost everything but running a successful business.

The conclusion to which I am led is that the cooperative democraticstructure is an inappropriate structure for a successful business operation inthe U.S. food retailing industry. While poor decisions by board and manage­ment and political infighting may have hastened CCB's demise, the structureitself doomed the cooperative to be an ineffective participant in the retail gro­cery industry. Much of the cooperative's original niche-price, variety andconsumer information-had been co-opted and even surpassed by CCB'scompetitors. In an industry where the requirements for success are a signifi­cant capital pool, volume, economies of scale, focused strategy, flexibility,mobility, and most of all market share, the democratic structure was too cum­bersome to allow CCB to change as much and as rapidly as was needed tosurvive. The cooperative structure was imposed on an industry where it couldnot effectively compete. The management dictum, "Structure follows strat­egy" was ignored. Infact,consumer watchdog organizations and governmentlobbying efforts may better serve broad numbers of consumers in the 1990sthan direct economic participation in an industry controlled by efficient andpowerful giants.

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CHAPTER VIII

By Margaret S. Gordon

••••••••••

The Rise andFall of ((8

Margaret Cordon is a Professor of Economics, University of California al Berkeley, and was a Co-opBoard Member, 1980-1988.

I t is almost exactly 50 years since my late husband and I joined the Con­sumers Cooperative of Berkeley (CCB).We had moved to Berkeley fromCambridge, Massachusetts, in the summer of 1938, when my husband

was appointed Assistant Professor of Economics at the University of Califor­nia. Not long after, we were driving west on University Avenue one day whenwe saw a sign that said "Co-op." We immediately stopped and went in, hav­ing been familiar with a co-op in Cambridge.

It was a tiny shop, with, as I recall, only dry groceries-no produce ormeat. There was a single clerk, and we were the only customers in the store aswe looked around. From that small beginning there gradually developed thelargest consumer co-op in the Continental United States, with, at its peak, 12supermarkets, a hardware/variety store, more than 100,000 members, andannual sales of slightly over $80 million, even bigger than Greenbelt in the IXarea. Three of the supermarkets were in Berkeley, and the others were inneighboring communities of the San Francisco Bay Area.

What were the reasons for the initial impressive success of CCB and itsultimate failure? In facing this question, I shall be writing as an active partici­pant. My husband and I were very much involved with CCB over many years.He was an economist with a strong interest in business management and wasa member of the CCB Board for nine years between 1951 and 1960,serving aspresident for five of those years. Afterward, he continued to be involved aschair of the management committee or as a member of various ad hoc com­mittees.

My involvement came much later. Although I served on a few commit­tees in the 1970s, it was not until 1979,a year after my husband's death, that Iwas persuaded to become a candidate for the board. I served on the boardfrom 1980 through 1987 (part of the time as first alternate) and was presidentin 1982.Like my husband, I had a doctor's degree in economics.

57

I propose to consider: 1) the chief reasons for CCB's strength during itsfirst few decades; 2) some of the factors that contributed to the gradual weak­ening of its position from the 1960son; and 3) a series of interrelated develop­ments from 1985 on that finally led to disastrous losses which could not beovercome.

CCB's Strength

A primary reason for CCB's strength and healthy growth during its firstfew decades has to be found in the characteristics of Berkeley's population.Berkeley isa university community, in which a sizable proportion of the popu­lation is somewhat informed about co-ops and sympathetic to them. There areother examples of university communities in which strong co-ops developed,at least for a time-Palo Alto (the home of Stanford University), Hyde Park(near the University of Chicago), Hanover (the home of Dartmouth College),and several others.

Another important aspect of Berkeley's population was the presence ofa large number of Finns with a tradition of interest in co-ops. The Finns hadopened a cooperative gasoline station, which later merged with the coopera­tive food store. During the 1950s,several of my husband's fellow board mem­bers were Finnish-Americans. Moreover, the late Eugene Mannila, who wasgeneral manager of CCB from 1947 to 1971, and who played a major role inguiding CCB through its most successful years, was a Finnish-American.

We shall find, when we consider the results of a 1982 membership sur­vey in the next section, that Berkeley members tended to spend more at CCBthan members in other areas where stores were developed. This was at leastpartly attributable to the fact that most members in Berkeley lived not morethan a mile or two from one of the three Berkeley stores, whereas members inthe areas of some of the other stores were much more scattered.

Growing Weaknesses

As Robert Neptune concludes in his chapter, there were a number ofreasons for what he calls the growing "disintegration" of the three large coop­erative organizations in Northern California-eCB, the Palo Alto Co-op, andAssociated Cooperatives, the wholesale. Since I am in Virtually completeagreement with him, I shall not repeat what he has to say, but will presentsome illuminating data based on a large-scale membership survey that I orga­nized while I was president in 1982,as well as an analysis of population datafrom the 1980 Census that I undertook in the same year.

In designing the membership survey, which was carried out in coopera­tion with the Survey Research Centerof the University of California, we sorted

58

the members in the area of each CCB supermarket into four groups, accordingto their total expenditures at CCB in 1981 and their holdings of membershipshares, and then drew a random sample from each of these groups. Group 1,for example, included members who had spent $500 or more at CCB in 1981and held $100 or more in membership shares. If we had Simply drawn a ran­dom sample of all members, the data would have been swamped by the manymembers who purchased very little at CCB.

One of the most striking results of the survey indicated that Berkeleymembers tended to spend moreatCCB than members in other areas (Table 1).Among the Group 1 members, median expenditures in 1981 were consider­ably higher at the Shattuck Avenue supermarket (by far the most successful ofCCB stores in terms of total sales and net earnings) than at any of the othersupermarkets, but median expenditures at the other two Berkeley stores-

Table]

Differences in Spending Patterns at CCB by Supermarket Area

Median Spending in Percent of Food Budget Spent1981-Group 1 Only All or Most Little or None

(Percent of All Respondents)

University $1,547 37.1 15.4Shattuck $1,987 35.3 21.2Telegraph $1,624 23.8 23.8North Oakland $1,241 33.8 25.0Geary Road $1;389 19.7 45.9EI Cerrito $1,161 16.0 23.7Marin $1,274 28.5 25.2Northpoint $1,218 33.3 27.7

Percent Giving Selected Reasons for Not Shopping at CCB(Respondents Spending Little or None of Their Food Budgets There)

UniversityShattuckTelegraphNorth OaklandGeary RoadEI CerritoMarinNorthpoint

Prices Not Competitive

68.2%48.865.064.750.058.139.526.5

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Store Too Far Away

22.7%16.312.519.463.945.257.965.3

University Avenue and Telegraph Avenue-were also considerably higherthan at the stores outside of Berkeley.On the other hand, the percentages of allrespondent members who indicated that they spent all of or most of their foodbudgets at CCB were almost as high among North Oakland and Northpoint(San Francisco) members as among those in the University Avenue andShattuck areas, whereas the percentage was low among Telegraph Avenuemembers, many of whom were students and belonged to CCB for only a fewyears before graduating.

The percentages of all respondent members who said they did very littleor none of their shopping at CCB were relatively low among University Av­enue and Shattuck members, although not greatly lower than in most of theother areas, with the exception of Geary Road (Walnut Creek), where 46 per­cent of the members said that they spent very little or none of their food bud­get at CCB.

Of special interest are some of the data on reasons for not shopping atCCB-note that only those respondents who said they spent very littleor noneof their food budgets at CCB were asked to respond to this question. "Pricesare not competitive" was mentioned particularly frequently, but the propor­tion giving this as a reason for not shopping at CCB was particularly high inthe areas of the University Avenue, Telegraph Avenue, and North Oaklandstores-areas that tended to have many low-income residents-whereas itwas mentioned considerably less often in affluent Marin and among respon­dents affiliated with the Northpoint store in San Francisco. Also particularlyilluminating were the percentages of respondents mentioning "store too faraway" as a reason for not shopping at CCB.These percentages were relativelylow among the respondents from the areas of the three Berkeleyand the NorthOakland stores, but were very much higher in the other four areas, whichtended to have a more scattered population.

Not widely recognized in the discussions of the problems of a numberof the CCBstores was the decline in population in the 1970sin the areas aroundsome of the stores. I became curious about this question and undertook ananalysis of the 1980Census data when they began to become available in 1982.

We begin with changes in the population ofcities in which or near whichthe CCB shopping centers were located. Table 2 shows that between 1970and1980 only the cities that may clearly be regarded as suburban experiencedpopulation increases. Even among this group, Corte Madera, in which theMarin center was located, showed a slight drop in population, while nearbyMill Valley experienced no change. There were declines, some of them quitepronounced, in the populations of Berkeley, El Cerrito, Richmond (includedbecause parts of Richmond are quite near the EICerrito center), Oakland, andSan Francisco.

60

The drop in the white population was even more pronounced than thatin the total population in Berkeley, EI Cerrito, Oakland, Richmond, and SanFrancisco, and there was a slight drop in the white population in Mill Valley.Moreover, in many of these cities, there were sizable increases in both the blackpopulation and the population of "other races," chiefly Asian. On the otherhand, Berkeley experienced a sizable decline in its black population, whichmay well have had an adverse effect on CCB sales, especially in the UniversityAvenue store, which was located in an area with a large black population, andwhere CCB had gradually come to be favorably viewed by blacks because ofits affirmative action policies.

Table 2Percentage Changes 1970 to 1980 in the Total Population and in the WhitePopulation of Cities With CCB Shopping Centers (or Near Such Centers)

BerkeleyEl CerritoOaklandRichmondWalnut CreekSan FranciscoMarin Cities

Corte MaderaMill ValleyLarkspurSan Rafael

Source: 1980 Census

Total Population

-9.4%-9.8-sz-5.5

-34.6-5.1

-4.60.05.5

14.7

White Population

-13.7%-25.3-392-37.428.7

-22.7

n.a.23.2n.a.8.6

Using Census tract data, I attempted to define the estimated marketingarea of each of the eight stores and found sizable decreases in population in allof them with the exception of Marin and Geary Road.

The Last Four Years

Although CCB increasingly experienced losses in most years from 1976on, it was a series of interrelated developments from 1985 to 1988 that so weak­ened CCB's financial position that it was forced into bankruptcy.

61

The early 19805 was a period of alternating control of the board by thetwo factions that were constantly struggling for control, associated changes inmanagers, continuing severe losses in a number of the stores outside of Berke­ley, and decisions to close or sell these stores: By the time the 1982survey wasconducted, four of the 12 supermarkets had been closed. The Corte Maderastore in Marin and the North Oakland store were closed in January 1984,theGeary Road store in February, and the EICerrito store in April. The closureshad been preceded by continuing losses, as members in these areas, and par­ticularly in North Oakland, resisted closure.

The Marin store had been part of a small shopping center owned byCCB.The shopping center was purchased by two developers who proceededto invite CCB to reopen a food store, of the ranch market type, with emphasison expanded service departments: bakery, bulk foods, wine and beer, etc. Aunique feature of the proposal was the installation of sophisticated testingequipment for produce pesticide/contaminant residue, and washing pro­cesses. In September 1984,the board approved by a five to four vote the pro­posal forCCB participation in the Marin center, subject to sale of the ElCerritoproperty on satisfactory terms, and subject to board approval of the contractswith the association that had been formed to oversee the revamped center.Those who voted in favor of the proposal were strongly influenced by thethought that the pesticide feature would appeal to Marin shoppers and, ifsuc­cessful there, might be adopted for one or more of the Berkeley stores.

The proposal, as approved, was a relatively modest one and did not in­clude a meat department. However, no suitable meat vendor was found, andit was agreed that CCB would take over the meat department. Meanwhilemanagement reported that the association was seeking outside financing tocover the cost of equipment and remodeling of the shopping center. When thefood store opened, it was far more elaborate than the board had envisaged,including an expensive glassed-in meat and fish service counter and an exten­sive produce department. On the opening night, in August 1985,I happenedto have a conversation with Gene Mannila, the former general manager ofCCB, who commented that the labor costs would be very heavy. Indeed theywere, and the store proved to be a loser from the start. With a breakeven pointof about $100,000 a week, sales hovered around $60,000 a week. Moreover, thepesticide apparatus was never installed, apparently because the developer ofthis feature could not obtain financing.

In October, CCB Board members received a memo from the actingchief executive officer and general manager of Associated Cooperatives,protesting that CCB was in arrears amounting to $460,000on its paymentsto AC. By December, the total amount in arrears amounted to about $1million, and two days before Christmas, the general manager of AC (whohad been on the job only a few months) announced that henceforth CCB's

62

purchases from AC would have to be on a C.OD. basis. I had flown to NewYork to be with members of my family for Christmas and was called thatevening by the administrative assistant to the CCB general manager to in­form me of AC's decision. I urged that the two boards (of AC and CCB) gettogether and work out a schedule of delayed payments for CCB. But thiswas not what happened. The CCB Board voted to shift its purchases awayfrom AC and to buy chiefly from Certified Grocers (known as Cergro).

The results of this decision were many-mostly very unfortunate.CCB found itself without the co-or label products that had been verypopular with members-quality-controlled products available at pricesbelow those of national brands. It was at about this time that sales began todrop in the Berkeley stores, and it seemed clear that significant numbers ofmembers reacted to the absence of co-or label products by ceasing toshop at CCB. About six months later, arrangements were made by AC withSierra Natural Foods to supply some co-or label products, but the num­ber available was greatly reduced and prices of the products were rela­tively higher than they had been previously.

The repercussions at AC were even more disastrous. CCB had accountedfor more than 60 percent of AC's purchases, and AC, with a financial positionthat had already been weakened largely as a result of accounting problemsand shifts in management, found it necessary to sell its large warehouse andessentially to get out of the wholesale business. Meanwhile it continued toinsistthatCCB pay the $1 million owed AC CCB resisted, maintaining that itsworking funds (deposits with AC to cover overhead costs and costs of equip­ment) could be used to meet its debt to AC The result of this controversy wasa prolonged battle between the two organizations and eventually a suitbrought by AC against CCB.

In April 1986, the suit was heard by a judge, who ruled that a lien beplaced on CCB's Hardware-Variety store (located across the street from theShattuck Avenue store) to insure payment to AC CCB was forced to sellthe Hardware-Variety store as a result.

Meanwhile, CCB continued to experience losses, as sales, even atShattuck, continued to decline somewhat. One of the acute problemsstemmed from the fact that the numerous store closures had not been ac­companied by adequate cuts in overhead expenses, which were runningwell over the net earnings of the stores. A task force that I was asked tochair in June 1986 recommended, among other things, a sharp cut in over­head costs. That same month, Lynn MacDonald announced that she wasresigning her position as general manager, effective in September. AllanGallant, who had operated a group of stores in Alaska, was appointed chiefexecutive officer, and Jeff Voltz, who had been associated with Gallant,became general manager.

63

The continued drain of losses at Savories (the name that had been givento the Marin store) eventually led to the closing of that store. Meanwhile, earlyin 1987,Gallant was able to negotiate a loan of $1 million from Cergro, securedby a mortgage on CCB property. I voted to approve the loan, but with a sink­ing feeling that CCB would not succeed in restoring its cash position to a pointthat would permit repayment of the loan.

Meanwhile, a great deal of time and energy on the part of the board,management, and interested members went into a series of meetings which atfirst considered converting CCB into an Employee Stock Option Plan (ESOP)and later to a member-employee owned enterprise-meetings which eventu­ally proved fruitless because the union with the largest number of CCB em­ployees, the Retail Clerks union, vetoed the plans.

My second term on the board expired in January 1988,and Idid not runfor re-election, although I could have done so under the bylaws, since I hadnot had two consecutive three-year terms. Thus I was not involved in the pain­ful developments of 1988--the decision of Cergro not to renew its loan, thefact that by June CCB was on a C.OD. basis with all its suppliers, the disap­pearance of many items from the shelves as a result, the breakdown of theproposed sale of CCB to Living Foods.

In conclusion let me reiterate my agreement with Neptune's analysis ofthe reasons for failure, but I would add one other factor-the growth of com­petition which made it difficult for many of the once-thriving cooperativesthroughout the country to survive. There was a time when CCB had the finestproduce department in Berkeley, but the chains responded by improving theirproduce departments, as did Park and Shop, while the growth of specialtyshops, particularly the Monterey Market and the Berkeley Bowl, attracted thepatronage of many CCB members, as our 1982 survey showed. Moreover,enlarging its stores to accommodate a much greater variety of products, ascompetitors were doing, was out of the question for CCB, with its weakenedcash position.

64

CHAPTER IX

By Terry Baird

••••••••••••••••••••••

GovernanceFactors as a KeyElement in theDecline of CCB-A PersonalPerspective

Mr. Baird is gCl/eral mallager of Associated Cooperatives, the formcr pnncipa! wholesaler for Coneum­ersCooperative of Berkeley. At various rillles ill thepasthehasserved011 boards and committees will/inthesettooorgonizations.os wellas in oolunteer and paidpositions illa varictyof coopcratioeenterprieee.

H OW are key decisions made in a large and democratic economicinstitution? Asking the right people to make the wrong decisions(and vice versa) can be a fatal mistake. Three examples will be

examined here.Many factors led to the demise of the Consumers Cooperative of Berke­

ley (CCB). Often mentioned are increased price competition, an expensivework force, and slow response to a changing market. Every bit as important,but often underestimated, is the governance factor. Governance at CCB willbe the focus of this paper.

For OUT purposes governance will be defined as the point at which own­ership meets management. In the cooperative context governance is the way aco-op utilizes its most important resource, its members. It would seem that acooperative governance structure offers a natural advantage to retail co-opsthat competitors lack-the opportunity to release the energies of interestedowner/shoppers to guide and strengthen the business. What happened atCCB?

65

CCB Governance Overview

Before looking at three examples of governance problems, we need totake a brief overview of the structure of CCB. The nine-member, volunteer(unpaid) board of directors which governed CCB was elected directly and atlarge from the membership to serve three-year terms. The board selected thegeneral manager and reviewed that person's work. It reviewed business op­erations, set policy and planned the cooperative's future. The general managerselected the staff. Ad hoc committees of the board, membership, or staffworked on various assignments. Standing committees oflhe membership metmonthly to conduct ongoing business and advise the board.

For the first two decades after its founding in the 1930s,CCB operatedone food store in Berkeley,California. In the next two decades it expanded tooperating 12 supermarkets within a 35 kilometer radius of Berkeley, alongwith related retail businesses.

In order to allow a greater voice for members at each store (or "center")a system of center councils was introduced. These center councils were volun­teer (unpaid) advisory bodies elected from and by the members at a local cen­ter. The councils met monthly with the center manager to review operationsand make suggestions. The councils also raised and disbursed small amountsof money for local center and community activities.

When the center council system worked well it offered members an op­portunity to be involved in their co-op at a local level. It provided a pool ofvolunteers for organizing local community events which in tum raised theprofile of the individual center and helped to define the co-op at the local level.The system helped to identify and train potential board members. The coun­cils gave the center managers direct consumer feedback on center operations.

When a center council was not working well, it failed to accurately rep­resent a true cross section of member/ shoppers, failed to reach agreement onrecommendations, and wasted the lime of, and discouraged, both staff andvolunteers. Much of what was true of center councils was also true of boardand membership committees, through which member volunteers advised theboard on system-wide concerns. These committees were appointed by theboard and usually included representatives of the various center councils.

Governance Problem Example: Controversial Products

As an institution selling thousands of varied consumer products to tensof thousands of informed and opinionated owner/shoppers, it was quite natu­ral that CCB would experience controversy over the selling of some products.Controversial aspects of a product might include such concerns as personalhealth (talc coated rice), international health (the Nestle Company's sale ofinfant formula in the Third World), environment (tuna from dolphin killing

66

nets), production by a military supplier (Dow Chemical), production by anuclear supplier (General Electric), labor disputes (table grapes andfarm workers), and country of origin (Chile under totalitarian rule), amongothers.

The proliferation of concerns was complicated by the fact that even thoseconcerns with broad support often had vocal and tenacious opponents. Thisopposition was of two types: either a specific alternative to the concern in ques­tion or, more generally, opposition to the principle that some factor other thanconsumer demand should determine which products CCB would sell.

CCB's response to these concerns was generally of two types-s-eithereducational (shelf tags, newsletter articles, etc.) or prescriptive (banning theproduct). How the decisions were made varied over time and geography.Sometimes the board would debate and decide a specific issue. This seldomresolved the issue but often led to further debate and reconsideration. Some­times a center council would take a position on a particular product and seethat it was either removed or reinstated at the local center, irrespective of theofficialCCB position and despite the fact that the center council had no officialpower to decide such an issue.

In the last years of CCB, a board committee process was established todecide which product removal questions should go before the entire member­ship for a vote. But in every incarnation the policies, official or otherwise, thatgoverned controversial products were themselves controversial and led to thealienation of some segment of the owner/shoppers.

Three structural problems persisted:1) The large membership remained diverse in its concerns.2) New potential controversies continued to surface.3) The function of identifying and championing the various concerns

was divorced from the responsibility for the success of the business as a whole.The result was that actions that might have strengthened member loy­

alty and identified the cooperative as a socially responsible alternative in themarketplace were often just as likely to divide the membership and create theimage of an erratic and cantankerous organization.

What might have been more successful would have been to decen­tralize much of the operations and the governance. This would haveallowed a member to identify with a local center which shared views moreclosely with that member. Short of decentralizing operations, another op­tion would have been to give center councils the right to veto a set and lim­ited number of products, subject to periodic review. This would havemoved some real power and responsibility closer to the local member. Itwould have created a variety of locally tailored responses to member con­cerns, and forced local decision makers to prioritize among a wide varietyof concerns It would have diminished the distance between advocacy andaccountability.

67

Governance Problem Example: Developing Member Leadership andInsuring Member Control

What was done to attract and develop member leaders? What was theboard of directors asking the manager to manage?

During the half century of CCB's existence as a grocery retailer the in­dustry became increasingly competitive and sophisticated. In large measureCCB's business operations followed these trends, in addition to growing insize. Unfortunately, the same magnitude of resource allocation devoted toimproving plant, equipment, inventory, and staff was not devoted to the criti­cal element of member leadership.

Maintaining a high quality labor force is a product of recruiting the rightpeople and providing appropriate tools and training, as well as a supportiveenvironment. A cooperative's board of directors is part of its work force andhas exactly the same needs.

In theory, candidates for election to the CCB Board of Directors wererecruited by an official nominating commillee. In practice, a system of twopolitical parties developed within CCB during the last two decades. Recruit­ment became a function of these parties. Ostensibly, a party's recruitmentefforts would focus on individuals competent to direct the organizationtowards success within the philosophical goals of the party. These wereroughly differentiated as business concerns (right wing) versus socialconcerns (left wing). In practice, as in politics everywhere, these concernswere often subordinated to electability, availability, loyally, or appearance.Obviously what was needed on the board was a combination of right andleft capable of balancing the conflicting needs of the institution and itsvaried membership.

While this political system may have been no beller or worse than thatof a governmental entity of the same size, say a city of 100,000, there are twomajor distinctions that make running a co-op more difficult than running aCity-voluntary membership and no tax base. Consequently, CCB needed aleadership recruitment mechanism better than that of a small city.

Recruitment aside, once individuals found themselves on the board, acommittee, or a center council, there was no routine and ongoing training pro­gram. With few exceptions, training opportunities which did occur, usuallyattendance at conferences, would go as a reward to individuals with high se­niority who consequently were closer to the end of their volunteer service.Training opportunities were not as likely to go as an investment to individu­als with low seniority and consequently a longer potential payback period. Asfor training in meeting process for the whole board, despite much evidence tothe contrary in my personal observations over a period of 15 years, boardsgenerally felt this was unnecessary.

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If the conventional wisdom was to not spend CCB funds on trainingleadership, the idea of paying elected leaders for their service was even moreunpopular. And nowhere was this idea rejected more strongly than among theelected leaders themselves. Undoubtedly, much of the motivation behind thissentiment was an idealistic interest in community service. But one has to won­der whether if by remaining a volunteer a decision maker somehow escapeda degree of responsibility for the final outcome of decisions, leaving that bur­den to paid staff. A strange and often observed behavior of CCB elected lead­ers in times of economic hardship was to spend a disproportionate amount oftime discussing how to reduce the already insignificant amount of moneyspent on themselves. This was a terrible waste of time and only made decisionmaking more difficult.

With this emphasis on volunteerisrn in the elected leadership, what wasthe role of the paid professional manager? What was the board asking themanager to manage? I would argue that in addition to running a successfulgrocery operation the manager was being asked to run the democratic aspectsof CCB as well. In effect, the manager was being asked to run the board. Whilethis is true to some extent in any manager/board relationship, it was especiallytrue for CCB. It is not surprising that this situation was not acknowledged byany of the parties.

In short, if resources are not allocated to the recruitment, training, andcompensation of key elected decision makers in a complex and changing en­terprise, and if the paid staff is not recruited specifically to compensate for thisshortcoming, then the quality of decisions is a matter of chance chemistry be­tween random individuals. In the long run, one could not expect to be suc­cessful with such a system.

Governance Problem Example: Fear of Being Leaders

This last example is by far the most personal for me. After CCB hadclosed its doors and before it had disposed of its assets, J was loaned by Asso­ciated Cooperatives to CCB to serve as general manager on a part-time basis.It was my job to liquidate assets, pay creditors, and help determine what di­rection, ifany, CCB should take. We found a buyerforthe assets and filed withthe courts for bankruptcy protection to facilitate an orderly payment of credi­tors. These tasks were difficult but possible. The third task, finding a new di­rection, I found to be impossible. This was not because the organization hadexhausted all of its options. There was one excellent option remaining.

For many years CCB had published a weekly, tabloid sized newspaperwhich was distributed largely by mail. In addition to being the chief advertis­ing vehicle for the cooperative, the newspaper was a popular source of infor­mation on nutrition, cooperative activities, consumer and environmental

69

issues, and related community events. A substantial portion of the cost ofthe paper was covered by accepting general advertising, that is, not onlyadvertising for products sold by CCB. With a loyal readership and a sub­stantial revenue base, it would have been a low risk venture to attempt tomake the paper a free standing entity. This would have retained themajor means of interacting with CCB members. (In one survey it was foundthat the newspaper was more popular with members than the food stores.)It would have facilitated building new, non-capital intensive services forthe membership as an adjunct to the paper. It could have provided a run­ning start for any new retail venture that the organization might try.

Why wasn't this done? The board of directors was war weary after yearsof struggling to keep failing operations afloat amid the understandable mis­trust and anger of an increasingly abandoned membership. This contributedto an attitude on the board that doomed what may have been the last chanceto rebuild the organization. This attitude was expressed as two preconditionsto new activity, First, it was felt that a complete settling up of accounts wasrequired before anything else could be done. It appeared to me the board didnot fully comprehend that due to numerous legal problems this process couldtake years. Nor did the board appear to understand that there would no longerbe a viable membership after that amount of time, nor would there likely beany resources, Second, it was felt that in accordance with CCB's democratictradition there should be some sort of membership plebiscite or general meet­ing to work through what kind of future CCB should attempt to achieve. Pre­sumably this would follow the settling of accounts.

My belief was that the board needed to create a functioning model ofwhat the organization was likely to be in years to come. If members foundvalue in that model they would support it. That, to me, was the role of leader­ship in this circumstance, The other route was like trying to learn to ride abicyclewithout being willing to move forward. One would keep falling downuntil one gave up altogether. To my mind this lack of action was not the onemajor mistake of CCB,merely the last. In a few months I returned to my regu­lar full-time employment and the board selected a caretaker to watch over theremains of CCB.

Conclusion

Obviously, none of these examples examined alone contains the singlereason for the failure of CCB. Examined together I hope they show that farmore in the way of resources and ongoing attention needs to be placed in thegovernance structure of our cooperatives ifwe seek both survival and democ­racy in a changing world.

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CHAPTER X

By Bruce Black

•••••••••

The Final Years

All Oak/and resident, Bruce Black has /lCCll a member of eCB since1943. /-Ie is the III/shand of/orillaeCB tsome economist He/ell Black, whose contribution appears elsewhere in tire volume.

M y direct involvement in Consumers Cooperative of Berkeley (CCB)began in early 1986 when I was asked to serve on the strategicoptions task force organized by the board of directors to identify

the problems facing CCB and to make recommendations to correct them.Employee morale was one of the identified problems. I agreed to work on themorale problem by forming a study committee involving members and em­ployees to develop a program designed to stimulate employee interest andinput. Our findings and recommendations were submitted to the board in theform of a written report.

I was elected to the board in early 1988 and elected board president in1989, which was immediately after CCB filed for bankruptcy under Chapter11.

At the time I became active in 1986 it was clear to me that CCB was un­able to generate enough income to meet expenses. Patronage was decliningand stores were being closed in order to preserve assets and pay expenses. TheSavories venture in Marin County had consumed a substantial portion ofCCB's remaining assets. The relationship with the wholesale supplier, Associ­ated Cooperatives (AC), was bitter and CCB was on the losing end of a lawsuit that necessitated the sale of CCB's only hardware store.

Employee morale was at a low ebb, productivity was declining, and theunions were unwilling to ease the burden through further labor concessions.One of the business agents, from the retail clerks union, told me it was an in­competent co-op board and management that was causing the crisis and be­cause of that the union was reluctant to make concessions. The recent storeclosures had concentrated senior employees in the remaining stores causingour labor costs to be substantially more than the chain operations.

There had been a constant turnover of general managers (in most casesbrought in from the outside) which had the effect of increasing tensions among

71

both middle management and rank and file employees. There was little effortmade to hold employee meetings and address their concerns or apprise themof what was happening. Employees were increasingly uneasy over job secu­rity and tended to feel alienated. This was exacerbated by the lack of an ongo­ing training program and a fair system of employee accountability. Uppermanagement spent very little' time visiting stores and demonstrating a per­sonal interest in store operations. Rumors were often taken as facts, resentmentincreased, and productivity began to drop off. Customers complained aboutemployee attitudes and interest in serving the members.

Membership interest in serving on standing committees had declined toa point where the committees for the most part were not functioning, and thepresident and the board seemed to have lost interest in getting the committeesto function. Ad hoc committees were formed for specific tasks, but for the mostpart the board acted without the benefit of committee input. The situation wasrapidly turning into crisis management where all effort was devoted to savingCCB.

The president appointed an ad hoc committee to determine where CCBshould go and it was concluded that a hybrid co-op, one owned equally bymembers and employees, was the most desirable course.

I believe that the hybrid co-op might have worked ifwe had been able toget it on line while we still had adequate resources. Unfortunately, it took toolong to get the hybrid co-op operating and it became obvious that in order toprotect the interests of OUT creditors and members it was necessary to sell whilewe still had enough assets to meet our obligations.

The three areas I have identified as basic to the failure of CCB are: thecommittee structure; the relationship with labor unions and employees; andthe education program. I do not mean to imply these were the only factors inthe demise, but I feel they are of fundamental importance.

Committee Structure

It is through the committee structure that member concerns and inputare furnished to the board. Without constant interchange with the member­ship, the whole idea of a cooperative as people working together begins toerode. This happened at CCB and patronage started to drop as members be­gan to feel alienated and looked for excuses not to shop. These excuses in­cluded CCB's political actions (for removal of certain products like Chileanproduce) or expecting CCB to attain and maintain unreasonable standards inoperations or have lower prices.

Much of the foregoing could have been diffused through an active com­mittee structure. For example, many members objected to the removal of someproducts from the shelves for political or social reasons. They favored a policy

72

of posting pro and con arguments on the shelves. I believe a CO-DP'S role is toprovide all the information needed to let the members make their own choiceson controversial issues. The free market will then, in the end, determine whatthe members desire by their choices.

I think everyone recognized the value of having committees balancedwith people representing different points of view. Unfortunately, in practicethe committees tended to represent the point of view of the board majority.For many years the board was elected after extremely bitter contests betweenso-called conservatives and progressives. After the elections the winning slateswere unable to make peace with or work cooperatively with the opposition.Here are two good examples. When I was working on the committee address­ing employee morale and input, I was appalled when a board member serv­ing on the committee told me her interest was with the employees and it was"them or us" in working with the board majority. Later, when I first becamepresident of the board, I made an effort to pass a resolution commending theimmediate past president for his contributions to CCB. A majority of boardmembers objected, expressed their resentment, and offered a substitute reso­lution with no commendation but only "wishing him well."

In 1982a report from Touche Ross & Co discussed the role of CCBcentercouncils. The report bemoaned the lack of recognition by the board for councilideas and efforts. The report stated in part, "Center council members haveideas for a wide variety of events and volunteer activities that could increaseCO-Dp member involvement and customer traffic.... We believe that the cen­ter councils represent a valuable resource and should not be neglected." Ifound the same situation prevailed with the committees and this may havebeen one of the factors contributing to the decay in committee activity.

Labor Unions and Employees

The committee concerned with employee morale concluded that em­ployee input in store operations was nearly nonexistent and was in factdiscouraged by middle management. Employees did not feel they werereceiving the recognition they were entitled to. For example, there was noestablished training program for employees, no system for regular workevaluations, and no "on the job" system for accountability of individualemployees.

No regular meetings with employees were scheduled and because ofthis employees were not always aware of operational changes or the reasonsfor such changes. Many of these changes needed employee input and under­standing. Staff meetings would have provided a good forum for this. Manage­ment felt employee supervisors could inform employees, but in practice theinformation was often misunderstood or not transmitted at all. Sometimes the

73

new instructions were flawed and employees were not given the opportunityto point out possible problems. For example, check cashing procedures werechanged at each store and sometimes individual employees interpreted themdifferently. Member customers, who expected treatment to be consistent,were antagonized when suddenly faced with new and unexpected changes ina policy that varied in explanation from one employee to another.

The 1982 executive summary of the Touche Ross & Co operationalimprovement study recognized the employee morale problem. Under storeoperations Touche Ross said: "Loose enforcement of systems and proce­dures has led employees to conclude that management does not care.Minimum performance levels and standards have not been adequatelyidentified or communicated to employees and quantitative measures arenot used to gauge performance or productivity....We are concerned that topmanagement and merchandising staff do not regularly visit the stores."

CCB, for years, had agreed to accept the labor contract the largechains (Safeway and Lucky) negotiated. I believe this was an error andcontributed to the demise of CCB.1t was important for CCB to negotiate itsown agreement because of the major differences between a cooperative andthe chains. Members of CCB, particularly the education committee andcenter councils, needed to know store employees and work with them onco-op programs. Employees needed to have a stake in CCB as members;they should have been able to participate in committees without com­pensation and needed to be recognized for their efforts. Members should,as owners, have been able Jo do volunteer work without violating theunion contract-for example: posting consumer information and shelfcards, helping with inventory, landscaping, publication of the Co-op News,etc. We needed to deal with and eliminate the hostility that can developbetween employees, members and management.

Most board members would say a union contract addressing these sug­gested concerns and separate from the Lucky-Safeway contracts was impos­sible. Idiscussed this in detail with long time CCBmember Tom Nicolopoulos,who had many years experience in labor negotiations as chief of the State ofCalifornia Conciliation Service.He declared that such a separate contract couldhave been negotiated and definitely should have been attempted.

Union agreements and cooperation were crucial to the success of theproposed hybrid co-op. The hybrid co-op was recommended by an ad hoccommittee established by the board and then confirmed by a membershipballot. The unions had agreed to cooperate and the city of Berkeley alsoprovided support for the formation of the hybrid. City support includedfunding for a facilitator and a representative from the office of economicdevelopment to work on a transition committee which was set up to coor­dinate the creation of the new worker-consumer co-op. There were twelve

74

members on the committee: three from CCB, six from the unions, onefacilitator, one from the City of Berkeley, and a financial analyst. The com­mittee was able to put the general structure together but was then unableto implement. It was at this point that union-CCB cooperation began tobreak down. It became apparent to me that one qualified person whowould be acceptable to both the unions and CCB should have been em­ployed to set up the operational structure. In my opinion, the kind of detailrequired for the successful implementation of such a hybrid co-op couldnot be successfully coordinated by a diverse committee of twelve. The prin­cipal union representative and the City of Berkeley representative agreedthat such a qualified person was necessary but it was too late when thatoption was proposed. CCB had run out of time.

Education Program

CCB bylaws state: "This Cooperative shall be of the Rochdale type." Andlater, under article 4.1.6: "Education. This cooperative society shall make pro­vision and allocate funds for the education of its members, officers, employ­ees, and the general public, in the principles and techniques of cooperation."The bylaws also recognize the divisiveness inherent in political controversyunder article 4.1.7: "Neutrality. The cooperative shall be neutral in religion andpartisan politics."

I would argue that without a good ongoing education program thecoordination of member effort is difficult because there is no nucleus, nomodel, nothing to rally around. In its absence the organization becomes avehicle for promoting the ideas of individual members and their agendas. TheRochdale Principles provide guidance for an education department and com­mittees provide for an understanding of co-op values and a means by whichthe membership communicates with the board. It is essential that a co-op­members and employees--operate from a common set of values. This wouldrelate only to the co-op's operations and should not interfere with the indi­vidual values members might have outside the co-op. Every co-op employeeshould know and understand the Rochdale Principles and accept them as acondition of employment. Unfortunately, we lacked an agreed upon "Rulesof Conduct" such as the "Marquis of Queensberry Rules" for carrying out theRochdale Principles in making policy decisions. Without such rules the ten­dency is to judge a co-op more by chain store standards than co-op standardsbecause of a lack of understand ing.

75

76

CHAPTER XI

Adolph Kamil, Pharmacist

•••••••••

Other Views

Adolph Knmil was thefirst eCBpharmacist and remainedas a store department lIliHwger until thelastpharmacy closedin 1988. Kamilwas electedto theeeB Board of Directorsi111988, aftera 1987 vote bymembers cJumged thebylawsso that employees aswellasconsumers were eligible[oreIec/ioll to theboard.As offilly 1990, hewas still serving on theboard,which is trying fa resotue remaining legaland finan­cial issues.

U ndoubtedly, numerous interacting factors led to the decline of CCB.From my viewpoint, however, as manager of a small, peripheral de­partment, one reason stands out above all: a reduction of effective

managerial controls.When! started to work for CCB in 1959, we had only three stores. Top

managers showed interest by visiting regularly, asking questions, investigat­ing, making suggestions, and offering help or encouragement. My work wasclearly connected with those in authority. They were aware of both my mis­takes and my successes.

As we grew larger, my contact diminished with those who held practi­cal control of our operations. Layers of middle managers arose. These manag­ers varied widely in skills and interest and often did not stay long in their po­sitions. The chain of command developed gaps and weaknesses. Supervisionbecame less direct, responsibility less clear.! worked for long periods withoutreceiving any performance evaluation.

It became apparent that in order to get along well within our structure,we were expected to "live and let live." Rewards went to those who steeredclear of controversy and avoided raising difficult problems. Superficial ap­pearance became more important than substance.

Of course, over the years CCBdid have many talented, hard-working,dedicated employees. At times we had individual managers who tried to ex­ercise internal controls. They probed into our daily activi ties and worked wi thus directly to improve operating procedures. However, these people were al­most always soon gone. Our corporate culture didn't seem to provide fertileground for managers who were truly searching, innovative, and concernedwith the fundamentals of our work.

77

To anyone following current events, this pattern may seem familiar.Similar entrenched bureaucracies, lacking effective managerial controls andwithout checks and balances, have been observed in failing institutions all overthe world, whether governmental, private, or cooperative.

Marcia Edelen, ClerkMs. Edelen worked asa retailclerkat CCB from 1973until thestoresclosed ill 1988.Edelen waselectedto theCCBBoard Of Directors ill 1988, aftera 1987votebymembers cl1m/ged thebylawssothatemploy­eesas well as rcnsmners wereeligible forelection fa theboard. As ofJllly 1990,shewasstill seming ontileboard, wlridr is tnJing to resolve remaining legal andfil/ancial issues.

I believe that a new cooperative, incorporating both worker and con­sumer control, would be thriving in Berkeley today at former CCB locationsexcept for one major factor, which directly relates to the demise of CCB.Thisfactor became most apparent to me during the final two years of CCB's retailexistence.

By the fall of 1986, the board was desperate in its search for financialsolutions. The "hybrid" co-op proposal and the hiring of a chief executiveofficer who had led an employee stock ownership plan conversion else­where were board actions which responded to a key issue: Managementhad been advising for years that CCB labor costs must be reduced. Withthe new chief executive officer at the helm and the hybrid proposal over­whelmingly approved by the membership, it looked as if CCB was reallymoving in an innovative direction. Entering the spring of 1987, however, itbecame evident that the leadership of CCB was resisting appropriate in­vestment in the hybrid, as the timetable for conversion stretched out. Foralmost an entire year, the powers-that-were, including union officials, fellback on to the over-worn path of relying on doses of plain old managementtechnique to save the patient. As time and losses wore on, it seemed as ifCCB was nursing hopes of labor concessions and last-minute loans fromthe City of Berkeley or suppliers much like a pampered, undisciplinedchild. When these unrealistic hopes did not materialize, the hybrid pro­posal was retrieved from the back burner.

Sadly for the renewed effort, it was early March of 1988 when man­agement took the next major step by submitting their proposed hybridbusiness plan for city and union review, a crucial part of the conversionprocess. Shortly after, the hybrid plan was abandoned by the CCB Board­with press of time the official reason given. I shall always see the failure ofboth CCB and the hybrid plan as due to CCB leadership's lack of sincerityin creating and implementing a plan to include true employee involve­ment.

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Serena Bardell, Member

Serena Bardell joinedCCBlvhell file Sail Francisco storeopened in 1975, Site hasbeen a food and unnewriter for 25 years.

I can't pretend to know why CCB failed. I can, however, tell you thatI wrote several letters during general manager Lynn MacDonald's erapleading with the powers-that-were to realize that people might toleratemediocre quality for a good price or pay more for exceptional quality, butdamn few would pay more for less. I tried to awaken CCB to the growinginterest in culinary excellence; I remember specifically describing the op­tions available to San Franciscans-from the Mission's Latino delicacies toChinatown's produce and poultry-where fresh really means fresh andprices are competitive.

I'm certainly not alone in suggesting that, in the Dark Ages beforeBerkeley became a food mecca, when CCB was close to the only game intown, there were enough folks who ate and breathed politics to enable CCBto survive if not to flourish.

I haven't a clue why so many socialist types don't seem to care whatthey put in their mouths; for alii know, Berkeley just attracts ideologues,and the culinary passions of the 19805 equaled-in some metaphysicalway-the political passions of earlier decades.

I do know that this old-fashioned liberal joined CCB for idealistic rea­sons but refused to put second-rate food on her table to support a nice idea.Furthermore, time and again I would write the board or the Co-op News say­ing that I could never do all my food shopping at CCB's Northpoint Centerin San Francisco: both the meat and poultry there were inferior, and thestore was regularly out of stock on various items and didn't carry some ofthe others on my shopping list. So, after a while I knew if I went to CCB, I'dhave to make at least one more stop on my way home to complete my gro­cery shopping. It took a fair amount of dedication to continue to shop atCCB. If I'd been working all day or had small kids with me, I'd have spentmy money where [ could find the selection and quality [ wanted at onelocation.

Countless times the Co-op News mocked "Lucksafe," but, at least inmy neighborhood, Safeway figured out that, to keep its customers, it hadto improve its produce quality and selection, which it has continually doneover the past decade.

It always seemed ironic to me that Savories in Marin County, prob­ably the best food store of its day, was started by CCB, an entity more in­terested in political than culinary experiments. Alas, this beautiful swanmade its ugly duckling parent immensely uncomfortable, and the parentneither supported nor promoted its changeling of an offspring.

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Doug Buckwald, Member

Berkeley resident DougBuckwald became a memberofCCB in 1982. Heshopped mainlyof the ShattuckAvenueCenter and theCo-op Hardware Store.

The overriding principle of any cooperative enterprise must be that itremain democratically controlled by the members. One very striking-but byno means the only-s-example of our board taking action without a democraticmandate was the opening of "Savories" in Marin County. This financially di­sastrous operation came about as a result of a series of closed-door meetingsand behind-the-scenes negotiations. The members were purposely excludedfrom this entire process-since involving them supposedly would haveharmed CCB's competitive advantage. Ultimately, the failure of this experi­menteost the members a lot of money-but more important, it contributed toa growing feeling among the members that they no longer had control of theirorganization.

Other decisions of the board over the years-the plans to expand to othercities, the costly refurbishing and then closure of the hardware store, the deci­sions to engage in litigation on a variety of matters, even the decision in theend to support the offer by Living Foods to purchaseCCB's remaining assets­were made without adequate member involvement. The "Living Foods"agreement is a case in point: until they were threatened with legal action, theboard was not even going to allow the membership to vote on this crucial is­sue. That kind of attitude is simply not present in the leadership of successfulcooperatives.

Over time, it seemed that the representatives on the board became con­vinced that they could do whatever they wanted-as long as they kept the big"CO-OP" sign hanging over the door, they assumed that the members wouldkeep flocking in. By the time they realized the magnitude of their error, it wastoo late: they had already alienated too many people. A successful coopera­tive is united by a shared attitude more than anything else, but those in posi­tions of control at our co-op severely violated this attitude. The board began tofeel that they were the co-op-s-not merely individuals acting to carry out thewishes of the membership. We were supposed to trust that they knew whatwas best for us. It turns out they didn't.

Merry Blodgett Selk, Boord andCenter Council Member

I became involved in CCB, first as a center council member and then asa board member, because I was angry that the lines at the Telegraph Avenuestore were so long, the store so dirty and such a "poor sister' to Shattuck. The

80

things that had set CCB apart from other stores began to disappear, year byyear-home economist hours shortened, kiddie korrals gone, and worst of all,shopping lines longer, floors dirtier, shelves badly stocked. Even so, I lovedCCB, shopped there religiously, and was proud that "our co-op" had, atShattuck Avenue, the highest sales per square foot of any store west of theMississippi River.

I ran for the board and got 16,000 votes as part of a "reformist" slate.But once on the board, even though we held a majority, the real power wasmaintained by the management, starting with general manager RoyBryant. Every board meeting was a fractious and upsetting exercise in frus­tration. On one particularly memorable occasion, an audience memberpublicly asked counsel if I should be thrown off the board because I hadmissed three meetings that had been held to discuss the general manager'sthreat to resign (the meetings in question were all called during a crisis inlate December when I had been on vacation in New York). Meetings lastedfrom 6 p.m. to 1 a.m., and other members stood on their toes and screamedat each other accusingly.

The year I was on the board (1975), the pine trees logo was replaced byhockey pucks, because "national Co-op demanded it," despite our objections.We bought three stores in Oakland, because the general manager saw a bar­gain in Mayfair's going-out-of-business sale, and those who objected werecalled "racist" for not wanting to serve Oakland. We voted to open a store at aformer Mayfair in San Francisco because "so many people wanted it." Thegeneral manager also dreamed of opening a furniture store in the funeral par­lor opposite the Shattuck Avenue Center.

In the end, we lost the things that made CCB special, opened severalstores in areas where people didn't really support CCBanyhow, were stronglycriticized for being "too Berkeley," and the lines never got shorter at Tele­graph.

Richard Pearlman, PublicRelations Consultant

Richard Pearlman, a Berkeley resident,has beena memberofeCB since'/970. Heprovided publicrela­tioneseroiccs faCCB on a consultingbasisfrom 1981 to 1985.

Philosophy cannot be separated from action in the business world. CCBallowed itself to believe that its philosophy alone was enough to maintainmembers' loyalty. That was its undoing.

The final years of CCB were marked by declining sales andunprofitability. Both the board of directors and management attributed mostof the problems involved to exterior forces (the economy, competition, and so

81

forth). In reality, financial problems arose because CCB was serving its mem­bers and other customers poorly on several levels.

For instance, most CCB workers were very good employees. Unfortu­nately, the CCB workforce also included a number of employees who wereallowed to be rude or inattentive to customers without action being taken.These workers drove away members and customers and gave the organiza­tion a bad image in the community. CCB had neither a serious personnelpolicy nor any personnel training worthy of the name. One general managerwas undiplomatic enough to comment that the workers must be angels asnegative comments never appeared in anyone's file.

During four years of consulting with CCB on public relations, I sug­gested several times that employee problems be addressed. However, despiteverbalagreement frommanagement on morethanone occasion,no actionwastaken.

How this neglectful personnel policy affected business is easily illus­trated. My wife, who had been an extremely loyal member, refused to shop atCCB during its last two years of operation primarily because of employeerudeness,

Inaddition to a nonexistent personnel policy, CCBsimply did not main­tain the high standards of appearance and cleanliness needed in business.Stores tended to look run down, floors went uncleaned and unwaxed for longperiods of time, parking areas were poorly maintained. A co-op is more thana place of business-it is a "club" whose members want to take pride in theirorganization. It is difficult to be proud of a place with dirty floors and indiffer­ent service.

The combination of substandard service and store maintenance droveaway members and other customers. No amount of advertising, philoso­phizing, or articles in the Co-op News could undo the damage done by yearsof neglect.

CCB's problems were never ones of philosophy. The organizationsimply forgot to serve its members properly. Well-trained, friendly em­ployees, clean, well-kept stores, and a real working interest in members'needs would have been enough to keep CCB in business. The organizationSimply forgot to attach action to its philosophy.

82

CHAPTER XII

By Morris Lippman

••••••••••

The Palo AltoCo-op

Mr. Lippman entered theCooperative MOl/eme/lf 11/1934 ionenneand his Hiife movedfrom NeusYorktotueSunriseCooperative Farm COIll1JlWl!ty in Sagillllw Valley,Michigml. Sunrisewas1111 experiment incooperative livingfor100 families. Lippman mnnaeed five COI/SIll/ler cooperatiues avera Spall of twcllty­six years, and was 0/1 the board of Associnted Cooperatives for thirteenyears, three as president. For abriefperiod, he was also on the board of the Cooperative League of USA, a national organization natocalled theNatinnai Cooperative Business Association. 1111990, hecompletcd hisseven til ycarmllhe boardof directors of Consumers Cooperative Societyof Palo Alto.

The Consumers Cooperative Society of Palo Alto (CCSPA) was foundedby Stanford University professor J. Murray Luck in 1935. It started invery modest fashion, growing to a peak of operating six food stores

and at various times serving its communities with a gas station, a frozenfood locker (during World War 11), three pharmacies, an auto repair shop,a dry cleaners (including its own cleaning plant), and a drug and varietystore. Annual sales reached approximately $27 million. Currently, CCSPAis reduced to a single store with annual sales of $5 to $6 million. While therehave been a number of general managers in CCSPA's fifty-five year his­tory, one manager, Gilbert Spencer, served for twenty-four years.

There were several reasons for changes in management, includingsimple inadequacy and even, sadly, dishonesty. As the fortunes of the so­ciety changed, its distinctive characteristics also changed. At one point,CCSPA used consumer advisors to help members choose the most health­ful foods, to provide a host of recipes, to create a very friendly atmosphere,to educate the community in Consumer Cooperation, and to explain therequirements of membership. For most of its life CCSPA offered a newslet­ter for the general membership, under the helm of a trained journalist. Adelightful and unique service was the kiddie korral, where children wereentertained and otherwise cared for under adult supervision while parentsshopped in comfort.

As CCSPA fell upon hard times, all of these services, except the news­letter, were discontinued. (Even the newsletter, though issued currently, ison a curtailed basis.)

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The Effect of Berkeley

The deterioration and ultimate collapse of Consumers Cooperative ofBerkeley (CCB) had a strong effect on CCSPA. As CCB declined in fiscalhealth, it became a matter for media reports. As the decline continued, thepublic associated CCB's sad state with CCSPA. Even creditors became con­cerned and CCSPA's credit rating began to decline.

A factor of grave dirnension-a1rnostcosting CCSPAits very existence­was the decision in 1988 to expand and remodel the largest of the then threeremaining centers at a cost of over $1.5 million. The plan was very attrac­tive: we were to increase the facility by 6,000 square feet, expand the pro­duce department significantly, and install a new deli department. And in­deed the completed improvement was extremely attractive. So much sothat our sales volume increased from about $135,000 to $205,000 weekly.(Our manager's projections included a break-even in operations at$170,000.) Whether management was merely slovenly in its controls-orworse-we may never know. What is certain is that in a brief few monthsduring which we had management assurance that there was shortly to bea turn-around in cash dissipation, the correction never occurred and wewere in imminent danger of bankruptcy. What spared us from utter disasterwas our ability to sell our property-principally the lead store into which wehad poured the $1.5 million-to yield significant cash to payoff our credi­tors, and to provide time to regroup into our one remaining facility.

In my view, a matter of great importance in the decline of the large,established cooperatives was the change in priorities by the CooperativeLeague of the USA, from a fundamental concern for education in coopera­tive development to focusing on cooperative business. This change incourse was made distressingly emphatic by the change of name from Co­operative League of USA (CLUSA) to National Cooperative Business As­sociation (NCBA).

When I entered the Cooperative Movement, I was stirred by its flavor."Cooperative Business" was not its rallying call; "Cooperative Democracy,"the title of a book by James Peter Warbasse, was. (Dr. Warbasse was founderof CLUSA and its president for the first twenty-five years. The book wentthrough five editions and was the most widely accepted and respected publi­cation in American cooperative literature.) It was in that frame of mind that Iencountered and felt a deep reverence for Japan's extraordinary co-op activ­ist,Dr. Toyohiko Kagawa. Along with Warbasse's Cooperative Democracy wereother works by inspiring leaders: Masters ofTheir Own Destiny by M.M. Coady;Decline and Riseof theConsumer by Horace M. Kallen; Peace Through Coopera­tion by J. Henry Carpenter; Cooperative Peace by Warbasse; and Paddy theCopeby Patrick Gallagher.

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Berkeley Itself

Consumers Cooperative of Berkeley was for most of its life the mostadmired consumer co-op in America. It was a giant in strength and size, at onepoint achieving annual sales volume in excess of $80 million and operatingtwelve supermarkets as well as a wide variety of other enterprises--most no­tably a number of gas stations, pharmacies and alcoholic beverage depart­ments. CCB had an interesting start resulting from the melding of two societ­ies: a modest food store initiated by professors from the Berkeley branch ofthe University of California and a gas station cooperative founded by mem­bers of Berkeley's Finnish community. This joint effort was managed by Eu­gene Mannila, who had been the manager of the gas station enterprise.Mannila remained at the head ofCCB fora quarter of a century. Very promi­nent in the CCB structure was its Education Department, and the person whoheaded it for the longest period, eighteen years, was Emil Sekerak. Those werestrong and lovely times for CCB. So vigorous and sound was CCB then, thatit seemed inconceivable for this staunch and tremendously popular enterpriseto do other than grow ever greater and stronger.

But an unforeseen and devastating force-divisiveness among themembers-eame into play. Whereas in the beginning and for many yearsthereafter, conventional cooperative goals were assiduously adhered to­integrity in operation, inviting environment sound business practice­there now appeared, and grew to large numbers, a group of people whofelt that political and social issues were paramount. Typical of this newelement was a former board member (and chairperson of the educationcommittee) who picketed the main store-where the administrative officeswere located-with signs asking for a boycott because CCB was sellingCoors beer! (Official practice had been for CCB to inform shoppers that aproduct or a company was looked at with disfavor by unions or environ­mental groups. Notices were posted prominently and the shopper was leftwith the decision to purchase or ignore. The consumer was to be thejudge.) This new concept fought for dominance. And the struggle contin­lied for years, with board majorities changing. Once there had been asingle, vigorous rallying cry: Consumer Cooperation was to he our salva­tion. Now came this new, militant force that sought to right every evil insociety-at whatever cost, even the dissolution of the powerful coopera­tive which had been forty and more years in the making.

Before this period of political and social turmoil, a remarkable unanim­ity prevailed in the three most important units of consumer cooperative effortin California: the general management of Gene Mannila at CCB for approxi­matelya quarter century; of Gib Spencer at CCSPA for about the same lengthof time; and of Robert Neptune at Associated Cooperatives (the wholesale

85

society) for over forty years. These three leaders had roughly the same phi­losophy, and in their heyday, Cooperation was outstandingly successful.

(A significant example of their similar views on important issues oc­curred over thirty years ago when they recommended that the three societiesbecome one-with one general manager---even though the consequences hadto be that two of the three leaders would lose their positions of eminence! Suchunselfishness-such focusing on the common good-is an illustration of theirdedication, not sufficiently recognized in cooperative circles. Unfortunately,the recommendation was rejected by the societies involved.)

A Shattering Thought

At this point, it is altogether understandable that we entertain a shatter­ing thought: if CCB, that impregnable tower of strength, and CCSPA, whichwas once the sixth largest consumer cooperative society in the United States,could falter (and fail, in the Berkeley instance), then could such a fate also strikethe Japanese cooperatives? Would the disaster include Nada Kobe, the largestconsumer cooperative society in the world? For two powerful reasons I saythat such a disaster will never occur in Japan:

1) Japanese cooperatives are grounded in Kagawa's idealism and focuson Cooperation, Peace, and Love. As long as Kagawa is held in the reverencethe Japanese have for this giant among men, as long as the Japanese remem­ber with passion Kagawa's dictum that peace can only be achieved and main­tained through the Cooperative Movement, then consumer cooperatives willcontinue to grow in Japan.

2) Japanese cooperatives have learned well the lesson taught by thepresident of the Nada Kobe Co-op: "We must not lose money from ouroperations! Whatever it takes, we Simply must not lose!" Ifonly our Ameri­can cooperatives could have that principle drummed into their heads! Itseems so simple an order! But in one slovenly way or another (not takinginventories or worse, ignoring their warning; not abiding by budget; beingcareless with cash flow; etc.) we too often find ourselves on the brink ofdisaster.

Finally, the overriding question: can American cooperatives recovertheir earlier, more impressive achievements? The answer is obvious-but dif­ficult: Yes!Of course! Provided we can duplicate Japanese idealism in abidingby Kagawa's trilogy of Cooperation, Peace, and Love.

We once had a host of idealistic talent beginning with the Co-op League:Warbasse, Coady, Carpenter, Bogardus, Bowen, Voorhis, Fowler, Kallen,Alanne, and, of course, Kagawa. We must preach our message and attractmore of the idealists who, indeed, still roam the land. If we can achieve that,we'll be able to return to the world of CLUSA!

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CHAPTER XIII

By David J Thompson

••••••••••••••••

What's Nextfor California'sConsumerCo-ops?

Mr. Thompson is the vice president, WestL'rII States. and the directorof ill/ematiolla! relations of theNatiolla! Cooperative Business Associatioll. ric isalso011 theboards of the Davis Food Co-opand Asso­ciatedCooperatives. Hehasvisited conSlimer cooperatives inJapan 011 jollrseparafeoccasiolls and hostedhundreds of Japanese cooperators 0/1 flldr visits to America.

I n 1988 when the doors closed at the last three Berkeley Co-op stores, anera of consumer cooperation in America came toan end. California's con­sumercooperatives had not only lost their leader but a lot more. The 1960s

had been growth years for Consumers Cooperative of Berkeley (CCB), Con­sumers Cooperative Society of Palo Alto (CCSPA), and their wholesaler Asso­ciated Cooperatives. In the 19705 those cooperatives all grew as the consumermovement came alive and gave the cooperative movement a real boost. Inaddition, the new wave of cooperatives initiated by the counterculture beganto have an impact upon the existing cooperative sector. From this high pointof marketing euphoria in the mid-1970s, the world of CCB began to change.What does it all mean for cooperatives in general and consumer cooperativesin particular?

The end of CCB was like the death of the last dinosaur. Slowly the giantorganization threshed around on the floor with its huge tail sweeping back­wards and forwards knocking over everything in its way. Before CCB died italmost killed Associated Cooperatives, and in nearly killing AC, it almostkilled CCSPA. Both AC and CCSPA had to speedily liquidate their major as­sets just to keep ahead of bankruptcy. Only through skillful leadership anddedicated boards were those two organizations able to plan their way to sur­vival. AC is now a smaller organization with no physical assets and CCSPAoperates only one store. Although they have survived the major impact of thedeath of CCB, there is no guarantee they are out of the danger zone.

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The unfortunate result of the near demise of cooperatives in the SanFrancisco Bay Area is that America lost its largest and most well known con­centration of consumer cooperatives. For fifty years Bay Area co-op leadershad built an active and effective model of consumer cooperation which wasthe pride of America and the world. People came from all across the globe tosee the operations and study the education and member relations programsof the Bay Area co-ops. Through Associated Cooperatives there was an inte­grated wholesale and distribution network which brought together overtwenty different cooperatives throughout California. Tied together by bothpractice and philosophy, the cooperatives were community leaders and thevanguard of responsiveness to the changing needs of consumers. Almost ev­ery month the media carried glowing reports about the unique retailing prac­tices of these consumer co-ops.

During the mid-1960s,many both old and new wave co-op leaders wereconfident that the whole world was going to tum cooperative. Events seemedto be with us, people responded, and the membership grew by tens of thou­sands until the California consumer co-ops had over 130,000 members. Retailvolume had risen to over $100million and wholesale volume at AC had risento nearly $50million. AC conducted education programs, ran a summer pro­gram at Co-op Camp Sierra for over 400 co-op members, and distributedbooks and educational materials to other U.S. consumer cooperatives.

As the other authors in this volume have written in detail about thedownfall of CCB, I will not repeat their analyses except where it directly af­fects the future. My purpose is to reflect upon the meaning of the downfall asit relates to the remaining consumer cooperatives in California.

During the last few years of CCB there came a point where I could nolonger tolerate another scheme which might save that co-op. All the efforts tosave CCBonly seemed to prolong the agony. After fiftyyears people just couldnot let go of their cooperative. It had meant so much to them; for some it hadbeen their whole life, for others an important part of their daily communityactivity. On the other hand, reports of every problem of the Bay Area co-opswere in the local and national press. Some reporters seemed to enjoy describ­ing consumer cooperation as an ideal whose time had passed. One of the big­gest problems was showing the public that the death of CCB was not proofthat consumers couldn't run their own businesses. It had become as fashion­able to report on the dying co-ops ofthe 1980sas it had been to report on theirgrowth during the 1960s.

The dying of CCBhad a major effect on those of us whose affiliation waswith the new wave co-ops. We all wondered whether CCB'sdeath was a singlecase of illness or a disease that would spread to the other cooperatives bothold and new. We held our breath as the disease first struck AC and thenCCSPA. The closing of the AC warehouse and the brush with bankruptcy

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almost spread to the new wave cooperatives which bought from AC everyday and had sizeable investments in the wholesale. The entire new wavecooperative movement in Northern California came very close to shuttingdown completely. That disaster was only prevented by the responsible anddelicate managing of the reduction of Associated Cooperatives in conjunc­tion with the creditors.

It was also clear that the California consumer cooperative sector wasspending most of its time talking about the situation at CCB,CCSPA, and AC.At all the co-op gatherings over those dying years the entire discussion fo­cussed on what was happening there, and what it meant to other cooperatives.For almost five years, this topic dominated the California consumer coopera­tive movement. In the meantime, the new wave cooperatives worried abouttheir own situations, set up new wholesaling relations, and drifted apart fromthe movement. Isolation became part of the cure. To the new wave co-ops thedeath of CCB was not unexpected. We had all spotted the developing newmarkets and the changing demographics but were fortunate enough to havecredible roles to play in taking advantage of those opportunities.

For the new wave cooperatives, the difficult years began in the late 1970s.Caught between the idealism of the 1960scounterculture and the strictly busi­ness culture of the 19805, the new wave co-ops were struggling with an iden­tity crisis. The maturing of single radicals into married professionals meantnew lifestyles and new consumer patterns. While that example may be a littleexaggerated, it's close to the truth. In the '60s people were willing to volunteermany hours at a co-op, serve on boards and committees, and organize mar­velous community events. Thousands of people worked directly in co-ops toobtain discounts and to gain a sense of participation in store operations. Thesewere truly egalitarian years where the co-op as a model workplace and com­munity business was avidly discussed. There really was the feeling of build­ing an alternative society within the existing structure. Cooperatives wereviewed as a Trojan Horse of the counterculture. No one who was a part ofthose days will ever forget the crisp critiques of the status quo and the clearvalues of the alternatives.

However, volunteerism waned as people moved into their professionallives. The staff at cooperatives began to want rewards which reflected theirdifferent skills, length of service and levels of responsibility. What once hadbeen all unpaid work, became paid; where once there were no bosses, therewere now managers and assistant managers; where once there were all-staffmeetings to discuss almost every issue, there were now differing levels ofdecision making. Boards, which used to meet weekly for six hours at a timebecause they wanted to make sure the members were being represented,gradually relinquished control to management. Structurally, the cooperativeswere beginning to reflect the need for organizations to be competitive in the

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marketplace. For a cooperative to keep its staff and customers, things had tochange. But why?

The new wave cooperatives had begun in the late 1960sand early 1970sto meet the needs of a growing number of disaffected Americans. Anti-warand civil rights activists, ecologists stirred by Earth Day, and community con­trol advocates all saw co-ops as a symbol of the counterculture. Co-ops wereto be the lead economic institution which would revolutionize the market­place. Within the business, cooperatives tried to practice every method whichwould lead to a better society. The co-ops were truly models of microcosmicsocial and economic change. The co-ops led the way in environmental consid­erations, bulk products, reduced packaging, organic products, health foods,recycling, nutrition and consumer education, newsletters and forums, healthfairs and community events in the parking lot. Education, ecology, and ethicsin retailing were the foundations of the cooperative philosophy.

The dark clouds which appeared upon the horizon were not easily seenright away. The fact was that interest in natural foods and ethical shoppingwas a growing feature of American life. The cooperatives were in on the be­ginning of this trend but seemed oblivious to the fact they had no monopolyon the market. In American retailing no one can keep a good idea a secret fortoo long. Often the new natural food stores which opened were started by staffmembers of local cooperatives who saw a market opportunity and knew thatthe co-ops would not seize it. Knowing clearly there was no professional fu­ture in cooperatives and having a skill that was in great demand, they set offinto competition with their former employers.

Co-op employees, however, were certainly not the only ones who sawthe market moving in the direction of natural foods. Within a very short timehundreds of other natural food shops opened, usually in direct competitionwith existing cooperatives. No longer did co-ops have the idea to themselves.The natural food industry had arrived as a new segment of the retail food in­dustry. Millions of consumers across America were in search of the perfectnatural food store. In this new marketplace the cooperatives were soon at adisadvantage. Generally undercapitalized, unprofessionally managed, andunwilling to make changes, they paled in comparison with their competition.As a result the 1980ssaw the death of many of the storefront natural food co­operatives that had begun with such promise. Unfortunately, many of thecooperatives were both unwilling and incapable of revitalizing themselves. Inparticular, the buying clubs which had sprung up died as fast as they hadcome to life. The families (now two-income) that had once been their main­stay no longer seemed willing to exchange their limited time to save moneyon food.

Today, the market place is breaking down into the following segments:superstores of 60,000-200,000 square feet which sell both food and nonfood;

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chain and independent supermarkets with an average size of 20,000-40,000square feet; neighborhood grocery stores from 1,000 to 3,000 square feet. Inaddition, there are now gourmet speciality stores, usually independents orsmall chains, with store sizes of 10,000to 20,000square feet; natural food storesof 5,000 to 20,000square feet; and finally small gas station convenience stores.

In the midst of this segmenting, the California new wave cooperativeshave maintained their strong focus on natural foods. However, almost all thestorefront cooperatives which wanted to remain small have gone out of busi­ness. The new wave cooperatives which still exist have all grown considerablywith the optimum size now thought to be 10,000 to 20,000 square feet. Thereare now fourteen consumer cooperative natural food stores in California andone co-op (CCSPA) operating as a conventional supermarket. The total vol­ume of all the remaining consumer cooperatives in California is over $40 mil­lion. There are very few buying clubs in existence now, and with the closing ofAC's warehouse operation there are no wholesalers set up to serve the needsof buying clubs.

The superstores and supermarket chains are taking a higher and higherpercentage of the food dollar. The convenience stores and franchise food out­lets are also taking more of the food dollar. In between, natural foods storesand gourmet specialty stores compete with independent markets for the cus­tomer who wants to shop at stores which retain a unique character and sell adifferent range of merchandise.

In most of their locations the nalural foods co-ops currently occupy aunique niche. However, a number of small but growing chains of private natu­ral foods stores have emerged in the urban centers of California. They are be­coming dominant in their market areas and are forcing out the smaller, inde­pendent natural foods stores. Fortunately, many of the existing California con­sumer co-ops are not in central urban areas and therefore don't feel the impactof this competition. However, over the next decade these new chains will needwider market areas and will compete directly with the existing cooperatives.

These new natural foods chains copy many of the policies, practices andphilosophies of the cooperatives. They are therefore extremely well placed totake a part of the cooperatives' market. Fortunately, the cooperatives havelearned a great deal over the past twenty years. They are now players in themarket, often setting the standards by which others are measured. However,the cooperatives are not for the most part interested in becoming chains andmay therefore miss out on the economies of scale that come with higher vol­ume. North Coast Cooperatives, at $10 million per year, has the highest retailvolume among California consumer co-ops. The largest annual volume of anatural foods chain is over $50 million. The success of the chains is built aroundhigh income locations, new or refurbished facilities, expensive improvementsand fixtures, commitment to service personnel, attractive signage, and high

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quality foods. To operate in this way, they are prepared to invest the neces­sary capital, and to pay for it, they operate on a high margin.

The cooperatives are generally not yet as attractive as the private stores.Over the past decade the private stores have set the standards for image andappearance and have attracted a strong customer following. Over the past fewyears the cooperatives have begun to catch up in this area. As a result the co­ops are seeing continued and strong growth in customer count, membershipand retail volume. The cooperatives are definitely committed to building abetter consumer image and are doing so successfully.

One of the main differences between the private natural foods stores andthe cooperatives is the commitment toeducation. This is one of the areas wherethe cooperatives have a substantial lead. The consumer, nutritional and eco­logical information made available to the customers and members of coopera­tives is of very high quality and obtained from credible sources. Newslettersand in-store information displays are two of the excellent ways in whichpeople learn from their cooperatives. With the growing interest and concernover the environment and its effect upon the food supply, the cooperativeswere able to move quickly to show consumers that co-ops are to be trusted onthese issues. A long term environmental commitment and a record of com­munity service had already placed cooperatives at a high level of consumertrust. Recently, cooperatives were prominently mentioned for their integrityduring the "alar" apple scare and the "Chilean grape" poisoning incident.Most cooperatives have been showing annual sales increases of over 10%forthe past three years and they are expected to continue that kind of increasejust as long as the focus is on food safety.

The central issue for the new wave cooperatives today is how to protecttheir market share tomorrow. It is doubtful that the cooperatives will be ableto survive without some form of unification. The costs of running indepen­dent stores are high when you have separate management, advertising, edu­cation, and other programs. To reduce costs, cooperatives will have to movetoward joint purchasing of supplies, services, advertising, and education andmanagement programs. Recently, the Davis Food Co-op and the SacramentoNatural Foods Co-op agreed to share the cost of a chief executive officer ratherthan to have two separate managers. This unity between the two stores is ex­pected to reach down into many other areas of store operations. Because theyare only eighteen miles apart and share the same media market, these twoindependent cooperatives see a future where it will become necessary to uniteoperationally in order to preserve their market share.

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APPENDIX 1

•••••••••••••

ABrief Historyof the BerkeleyCo-op

1937 The Consumers Cooperative of Berkeley, composed mostly ofchurch and University people, opens a food store in Berkeley.

1938 The Berkeley Cooperative Union, with members coming largelyfrom the Finnish community, opens a service station and hardwarestore in Berkeley.

1940 Starts publication of Co-op News.

1942 Co-op makes sure it only selis lean ground chuck as hamburger,while other stores were selling "hamburger"-that could mean any­thing that would go through the meat grinder.

1946 Helps staff Consumer Information Center for the Civilian DefenseCouncil in Berkeley.

1947 The Consumers Cooperative of Berkeley and the Berkeley Coopera­tive Union merge into the Consumers Cooperative of Berkeley, Inc.

1948 An enlarged food store is built at University and Sacramento in Ber­keley.

1953 The University Avenue Food Store is again enlarged.

1955 Hires first Home Economist.

A Co-op auto repair garage is opened in Berkeley.

A hardware/variety store is opened at 1432 University Avenue.

1957 Co-op members open their first facility outside of Berkeley-a foodcenter and service station at 1510 Geary Road in Walnut Creek.

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1959 A third Berkeley Center opens at 1550Shattuck Avenue.

1961 Co-op issues its first statements to regulatory agencies and legisla­tures: on standards of identity for orange juice and orange juiceproducts; on fish protein, and on frozen raw breaded shrimp. Thesestatements will be issued regularly throughout the ensuing years,often with significant impact on the success of consumer efforts toenhance food safety and labelling standards.

1962 We acquire five stores from Sid's chain-in Berkeley,WalnutCreek,and Castro Valley, and converted them to co-ops. One was theNatural Food Store. The addresses were 3000 Telegraph Ave. inBerkeley, 1295South Main in Walnut Creek, 3667Castro Valley Rd.in Castro Valley, and 1581 University Ave. in Berkeley (now com­bined with the 1414 University Ave. Co-op Food Store).

1963 A food center and service station were opened at Eastshore Blvd.and Potrero in El Cerrito, after extensive planning by members inthe area.

1964 Co-op home economists issue first of many advocacy statementsurging all ingredients be listed on ice cream labels.

1965 Co-op wraps packaged meat with the fattier or worst looking sideon the top so the customer can see. The better side was placed onthe tray and could not be seen by the customer. The Co-op was try­ing to show the consumer who was the most honest market. How­ever, the program did not work well and was discontinued.

Co-op Low Cost Cookbook first published. It goes through 8 printings.It is first pu t together by Co-op members and consisted of inexpen­sive main dishes.

1966 Co-op lobbies extensively on the Fair Packaging and Labelling Law,which passes on Nov. 2, 1966.

1967 After ten years of planning, a Co-op shopping complex opens onTamal Vista Blvd. in Corte Madera, Marin County.

1968 First began support for farmworker struggles, United Farm Work­ers' Union (UFW).

1970 Begins carrying organic produce.

Bans sale of hazardous pesticides in our stores.

Establishes a community recycling center in Berkeley-a first!

Co-op organizes a petition drive to support first bottle bill depositlegislation. A weakened version finally passes in 1986.

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1971­1973

1972

1974

1975

1976

1977

1978

1979

1980

The Food and Drug Administration chose the Co-op as one of fivegroups nationally to test nutrition information on food labels. TheCo-op was the only group which obtained direction from consum­ers. In 1973, the FDS adopted new and better standards for nutri­tion labelling and adopted many of the suggestions for better in­forming the consumer that came from the Co-op.

Launches a campaign to educate consumers about the benefits ofplain aspirin YS. expensive pain killers to help members save moneyon drugs.

First store in the U'S. to sell nitrite-free hot dogs.

Publishes Co-op 35th Anniversary Menll Book, complete gourmetmenus donated by Co-op members including accompanying winesand liqueurs.

Co-op acquires three stores in Oakland from Mayfair and convertsthem to co-ops; 5730 Telegraph Ave., East 18th & Park Blvd., andone in the MacArthur-Broadway Shopping Center.

Following intensive member initiative, Co-op opens it firstSan Fran­cisco store, in the Northpoint Shopping Center at Bay and Mason.

Ceases purchase of fluorocarbon-containing aerosols.

Lowers milk prices illegally to force the issue of price fixing on milk.

Recognizing that it has long outgrown its physical limitations, theCo-op begins a complete redevelopment of the University AvenueCenter in Berkeley. The changes completely upgraded the motherstore of the Co-op.

First sponsors energy and water conservation clinics.

Because of the energy crisis and reduced traveling/losing operationsat the garage and service stations are discontinued.

Starts giving refunds for re-used paper bags and begins to sell Save­A-Tree reusable bags.

Begins marketing "Natural Pack" Co-op label canned foods-with­out added sugar, salt, and without preservatives or artificial colors.

Publication of "Berkeley Co-op Food Book", brings together in onepublication the food preparation, health and safety informationfrom prior years' home economists handouts, columns, etc.

Natural Foods products, initially promoted in a separate store in1971,are emphasized in special departments in all stores, includingfour specially remodeled for this purpose.

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1981 MacArthur-Broadway (Oakland) and South Main (Walnut Creek)Co-op Centers were closed.

1982 Castro Valley Co-op closes.

1983 Begins Boycott of Nestle's products because of infantfonnula scan­dals in Third World countries.

1984 North Oakland, Marin, Geary Road and El Cerrito Co-ops close.

The Co-op ran an ad in its Co-op Newscreated by a public interestadvertising company which was critical of sugar in cereals andfalse advertising. Other newspapers had refused to display thead because they feared they would lose advertising from thecereal industry.

Decides to boycott Chilean produce.

1985 Members vote to support boycott of Coors beer, which is subse­quently removed from Co-op shelves.

Goes on record opposing irradiation of food, calls for labelling anyirradiated foods, and launches petition drive to FDA on these issues.

Co-op's first specialty ranch style market (Savories) where a num­ber of different companies share the same roof.

1986 Closes Northpoint and Hardware Variety Centers.

Receives Nutrition Pace-Setter award from Center for Science in thePublic Interest for innovations in nutrition information and con­sumer protection.

1987 Co-op closes Savories. Unfortunately, this market closed soon afteropening due to many problems at the location, delays, other storesnot opening on time, opening of a nearby superstore, etc.

Efforts to create a Co-op owned by the employees and consumerswere the last attempt to save the Co-op. However, the efforts cametoo late and the differences too great to be overcome between thetwo groups. After the failure to create a new fonn of organization,there remained little confidence that the Co-op could survive. It wasnow only a matter of time.

1988 The Co-op petitions for bankruptcy and finally closes the threeremaining stores in Berkeley.

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1989­1991

1992

The last elected Board has the difficult and thankless task of presid­ing over the dissolution of the cooperative. In conjunction with thebankruptcy court, they sell off the assets of what once was America'smost important consumer cooperative.

The Co-op no longer exists.

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APPENDIX II

California'sCooperativeCommunity

By DavidJ Thompson

DavidJ. Thompson isa consuitontfortheNationat Cooperative Business Association. Heis president oftuc Twin PinesCooperative Foundation and is also0/1 tue boards of the Davis Food Co-op and Associ­ated Cooperatives. He!las visitedCO/lSI/mer cooperatives inJapan 011[ourseparateoccasione andhostedhundreds of lmxmesecooperators 011 theirvisits to America.

To many of those from other states or other parts of the world, Consumers Cooperative of Berkeley (CCB) was the most well known consumerco-op in California. In fact, California is home to an extremely wide

variety of co-ops, some of them far more important economically than CCB.The purpose of this section is to provide a brief outline of California's exten­sive cooperative community.

Agricultural and Rural Cooperatives

California is the largest state in the U.s. in terms of agricultural coop­erative business volume. Over 40% of California' 5 agricultural business isdone by cooperatives. Today, over 400 agricultural cooperatives, with69,000 members, operate in California. The two largest groups are the over100 cooperatives engaged in marketing activities, and the over 100 coop­eratives that purchase supplies and provide other services to members.

The California agricultural cooperative sector began at the end of thenineteenth century. Prior to that, many farmers were unable to withstand thefinancial losses arising from not being organized to represent themselves inthe marketplace. So farmers united economically to harvest, distribute, andmarket their products.

In 1893, citrus growers in Southern California formed a pool to sell theirproducts. This system grew and became the first marketing cooperative,known today as Sunkist Growers, Inc. The creation of Sunkist as a modelinitiated the creation of other single commodity marketing cooperatives in

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California. Many of these California co-ops are now among the most wellknown brand names in America today. Blue Anchor, Inc.; Blue DiamondGrowers; Diamond Walnut Growers; Sun Maid Growers of California;SunsweetGrowers, Inc.; RiceGrowers Association;Calavo; and Tri/Valley aresome of the names that now appear every day in supermarkets in the UnitedStates and throughout the world.

The agricultural cooperatives in California playa leading role in the farmsector. The ag co-ops work closely with federal and state government depart­ments, universities, research organizations, and the Cooperative ExtensionService of the US. Department of Agriculture. With these organizations andmany others, the agricultural cooperatives work to create an industry moreeffective in meeting the needs of farmers, retailers, wholesalers, processors,and consumers.

The national system of agricultural cooperative banking is very active inCalifornia. The Farm Credit System which finances land and production creditfor individual farmers and CoBank which finances agricultural cooperativeshave regional offices located in California. With $12.5billion in assets CoBankis the largest U.S.cooperative financial institution. This bank is owned by theapproximately 2,000 U.S. agricultural cooperatives and rural utility systemswhich are also its customers. There are also four telephone cooperatives serv­ing over 20,000 consumers in four different rural areas of California.

The Agricultural Council of California is the association of farmer ownedand operated marketing, bargaining, and service cooperatives. Organized in1919,it was the first state council representing agricultural cooperatives in thenation. The council works on behalf of its members in four separate catego­ries:governmental relations, education, public relations, and member services.

In 1987,the total volume of business activity done by agricultural mar­keting, supply, and service cooperatives in California was over $6.4 billion.This was more than 40% of the state's agricultural sales and 11% of the totalbusiness volume done by agricultural cooperatives in the United States.

Consumer Cooperatives

Today, there are over 40,000 active members of thirteen food coop­eratives scattered throughout California. These co-ops are: North CoastCooperatives (with stores in Arcata, Eureka, and Fortuna); ConsumersCooperative SOCiety of Palo Alto; Sacramento Natural Foods Co-op; Co­opportunity (Santa Monica); Davis Food Co-op; Cotati Food Co-op; VeniceOcean Park Cooperative (Los Angeles); Briar Patch Co-op (Nevada City);Chico Natural Foods; Ukiah Co-op; Ocean Beach Co-op (San Diego); andthe Isla Vista Food Co-op (Santa Barbara). It is difficult to know the num­ber of buying clubs in California because they independently purchase

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their foods from many different sources. At this time, probably no morethan 5,000 people participate in buying clubs.

With the exception of Palo Alto (founded in the 1930s), all of today'sfood co-ops began during the late 1960s or after. These "new wave" co-opsarose during the era of Earth Day 1970, the anti-Vietnam War protests, andthe Civil Rights Movement. During that time, many young activists orga­nized cooperatives as a way of gaining community control over economicactivity. The food cooperatives of that era were able to be at once a communityowned and controlled business, an environmentally aware business, andan organizing center for a wide range of social and political activities. Theemphasis of food co-ops at this point is promoting natural foods, organicproduce, and foods with no (or fewer) added chemicals. Consumer coop­eratives continue to have a high dedication to environmental principlesand community responsiveness.

Today's California food co-ops obtain their supplies from numeroussources. One major source for some of the co-ops is Certified Grocers, based inLosAngeles and Stockton. Certified isa retailer-owned wholesale cooperativewith annual volume of nearly $2 billion. Certified supplies a large portion ofthe needs of its member markets including many family owned markets andsmall chains as well as some of the larger chains. As the food co-ops havegrown and changed their merchandising to meet the needs of a wider rangeof the population, some have become members of Certified Grocers. There areother wholesalers serving retailers, but Certified is the only full range whole­saler that is cooperatively owned by retailers.

Sierra Natural Foods isa natural foods wholesaler that is partially ownedby Associated Cooperatives (AC), which was once a wholesaler owned by theretail consumer co-ops in California, went out of the wholesale business in1986and became a holding company for two natural foods wholesalers, SierraNatural Foods of San Francisco and NutraSourceofSeattle, Washington. Sincethen, AC has developed a line of natural foods products sold under the PacificGardens label. AC has been restructured during this process and is becominga different type of cooperative corporation designed to meet the needs of itsmembers. In 1991 Sierra Natural Foods closed its operations forcing AC torethink its future.

As AC closed its previous operations, it spun off its education and de­velopment department into an existing nonprofit called BAND (Bay AreaNeighborhood Development). Since 1964,BAND had operated as a nonprofit,tax-exempt organization controlled by the AC Board of Directors. Today,BAND has been renamed the Twin Pines Cooperative Foundation. TPCFoperates Co-op Camp Sierra, a recreational and educational camp for coop­erators held annually since 1938. Located in the beautiful Sierra NevadafoothilJs just south of Yosemite National Park, Camp Sierra is a place where

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cooperators from California and elsewhere gather annually to discuss differ­ent aspects of cooperation. The newest component of Camp Sierra is a TwinPines Cooperative Housing Institute which takes place each year during thesecond week of camp. The Housing Institute brings together cooperative hous­ing activists from throughout California and the rest of the United States.TPCF also operates the Co-op Resource Center, which publishes an annualcatalogue of books, pamphlets, and other co-op items for sale in all parts of theUnited States. In addition, TPCF coordinates a variety of educational confer­ences in support of the cooperative sector,

The largest consumer cooperative operating in California is RecreationalEquipment, Inc., based in Seattle, Washington. This national retail chain ofoutdoor equipment stores is the largest U'S,consumer cooperative with nearlytwo million active members and an annual volume in 1988-1989 of over $200million. REI, which originally began in 1938, is an outstanding example of acooperative corporation. Annually, REI returns to its members over 10% inrebates on purchases. In California, REI operates eight stores and has over500,000 members.

REI involves both staff and members in projects that protect wilderness.Each of the stores selects its own wilderness and recreation projects. Throughthese projects, REI has worked to build and maintain trails and clean up andrestore recreation areas throughout the country, On a national level, REI do­nates at least 1% of its pre-tax profits to defending wilderness and increasingpublic understanding of its values.

In 1985,REIjoined an elite list of the nation's best and brightest corpora­tions by being chosen for inclusion in the newly revised edition of The 100BestCompanies to Work for in America. The Seattle-based cooperative was one ofeleven retailers and the only sporting goods retailer to be included on the list.

Credit Unions

Credit unions in the United States are the largest cooperative sector. Be­gun first in 1909and then stimulated by the Depression and the passage of theFederal Credit Union Act in 1934,credit unions are also the greatest coopera­tive success story.

Credit unions are organized around three different common bonds: theworkplace, an association, or a geographic community. In California, there areapproximately 1,000credit unions serving seven million members at locationsin almost every comer of the state. They employ nearly 15,000people and nowhave loans and investments of over $20 billion.

Credit unions can be either federally or state chartered and must performat certain levels of fiscal responsibility to retain their right to do business. Gov­ernment agencies supervise their operations. California credit unions also

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work closely with the Credit Union National Association (CUNA) and theCalifornia Credit Union League.

With the dramatic changes in the US. financialsector,creditunions havebecome more aggressive in marketing and technological services. The privatebanking community has chosen to focus on attacking the credit union sectoras a means of red ucing competition. As a result, the 1990s may prove to be themost challenging eraforcreditunions since the 1930s.However, it is clearfroma University of California study (1986)that California credit unions saved theirmembers over $300million in interestpayments when compared with the costof borrowing from private banks.

Cooperative Preschools and Babysitting

Three types of groups belong under this heading:1) Private preschool cooperatives which are run and controlled coopera­

tively by parents.2) Adult education preschool cooperatives which are affiliated with a

school district and where there is a staff that teaches the children. Here par­ents provide support, participate in the teaching, and aIso help to set policies.

3) Babysitting cooperatives which are usually informal groups of par­ents involved in exchanging time for babysitting.

Funeral and Memorial Societies

In 1938, the first memorial society was started in Seattle, Washington.Today there are over 150 memorial societies operating in the US. and Canada.There are three types of societies. In California, the most common is the CO/1­

tractsociety which has a written agreement with one or more local morticians.A cooperative society has an informal agreement with at least one local morti­cian, and an advison) society primarily provides education about funeralchoices, rather than contracting with local morticians.

The fourteen regional memorial societies throughout California serve140,000 members. Annually, their members spend about one million dollarson funerals. Through contract arrangements, memorial societies can save theirmembers lip to 40% of total funeral costs.

Housing Cooperatives

There are 200 housing cooperatives in Califomia with a total of approxi­mately 26,000 units housing approximately 60,000 people. Cooperative hous­ing has been present in California since the early 1900s, although it did notbecome a sizable sector until the govermnent housing programs of the 1950s.

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A majority of the units existing today were built during the 1950sand 1960s.Additional units were created in the 1970s under a new state law which de­fined limited equity cooperatives. State government programs at that timeencouraged the creation of approximately 1,000units of limited equity coop­eratives.

The cooperative housing that exists in California ranges from high-in­come co-op apartment units in San Francisco to low-income farm workerhousing units in the Central Valley. However, the majority of cooperative.housing serves low to moderate income families. There are also excellentmodels that meet the needs of seniors, students, single parents, farm workers,and ethnic groups.

Over 2,500students live in 13student housing co-ops located at StanfordUniversity and near University of California campuses at Berkeley, Davis,Santa Cruz, Santa Barbara, Irvine, and Los Angeles. Cooperative Services Inc.(CSI),based in Detroit and the largest senior citizen housing cooperative in theU.S., now operates nearly 700 units of senior housing scattered throughoutCalifornia.

There are many other innovative forms of cooperative housing in Cali­fornia. Thousands of people, especially singles, now live in shared housing.These co-ops are formed by people who generally rent houses together, havetheir own rooms, but share in cooking and cleaning. In most cases this kind ofhousing is rented from private owners, but in some cases the houses areowned by the residents or by nonprofit organizations.

Nearly thirty mobile home park cooperatives with over 1,200 spaceshave been formed. In this model, the members own their own mobile homesand lease their space from the mobile home park which is owned coopera­tively. There is even a houseboat co-op on the San Francisco Bay which leasesits dock space as a co-op.

Worker Cooperatives

There are approximately 100worker cooperatives in California, with themajority located in the San Francisco Bay Area and Santa Cruz. Most of theworker co-ops began in the 1960sand 19705 as attempts at experimenting witha democratic workplace in an era of challenge to the status quo way of doingbusiness.

Many of these co-ops began with a direct social and political statementabout the workplace, community, and products. You can, therefore, find alarge number of these worker cooperatives in food, education, health, print­ing, and other consumer goods and services. It is difficult to know how manythere really are since worker cooperatives do not have a separate Californialaw under which they can incorporate. Instead, worker co-ops incorporate

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under general corporation law, cooperative corporation law, or nonprofit cor­poration law. They generally have not had an interest in shareholding or profiton investment, so they have not been especially concerned about their exactcorporate form.

Three of the more interesting worker co-ops are Bookpeople, AlvaradoStreet Bakery, and Uprisings Bakery. Bookpeople, based in Berkeley, is one ofthe leading distributors of books from small presses. This co-op distributes tobook sellers throughout the U'S. and has found a niche in the market of spe­cialty press distribution. Alvarado Street Bakery in Sonoma County is aworker-owned company which has grown tremendously due to the qualityof its natural bakery products. Uprisings Bakery in Berkeley has created a simi­lar natural bakery line. Both Uprisings and Alvarado Street distribute theirexcellent products to many of the cooperatives and natural food stores inNorthern California. There are many other examples of worker cooperativesengaged in the food and services area.

Another category is the taxicab cooperative. For example, Capital CityCab Cooperative in Sacramento has a membership of nearly 100 people. Ev­erybody who works in the cooperative is eligible for membership-from thereceptionists to the cab drivers. They all own shares in the corporation whichowns all the assets. Another model is the Yellow Cab Co-op in San Franciscowhich is owned by a number of individuals who own the licenses to operate acertain number of cabs. In this case, most of the people who drive cabs for theco-op are not eligible to become members because they have not been able toobtain a license to own a cab. The U'S,cab industry is regulated and often onlyso many permits are issued for cabs to operate in a particular city. There areother cab cooperatives in San Diego, Los Angeles, and other parts of the state.It's possible that 20 to 30% of the cab activity in California is actually done bycooperatives.

There are two unique groups of worker cooperatives within the state.One is in Santa Cruz, where in the aftermath of the 1960s an organizationwas created to develop local cooperatives around this university town. Theresult was nearly 20 worker co-ops that catered mostly to the student andalternative communities. Over the years, these groups have maturedconsiderably and are now community-based rather than student-orientedorganizations. They continue to work together and to help each other andhave generally been quite successful. Another group started at the Univer­sity of California at San Diego. Because this was a new campus that had nobusinesses in place, the students organized cooperatives to meet theireveryday needs such as food and general goods, clothing, bicycles, records,and cafes. As the university and student organization have grown, therehas been great pressure upon the cooperatives to actually get out of busi­ness. However, the student cooperatives have strongly resisted this

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pressure and continue to play an important role. All of their businessesoperate directly on campus to serve a student constituency.

Arts & Crafts Cooperatives

There are 26 or more arts and crafts co-ops in California. In these coop­eratives, the member artists must give a certain number of hours per month tothe co-op. By running their own shops, selling directly to the public, and pro­viding free labor, the artists gain a greater income from the sale of their work.About 1,000artists are members of these co-ops. There are two unique live/work space co-ops in Emeryville near Berkeley.Over 100 artists live in thesetwo limited equity cooperatives which also provide space for the artists to dotheir work.

Business Cooperatives

In California, many individual companies have recognized the benefitsof using cooperatives to further their economic interests. In fact, there is agrowing trend by small independent businesses and franchises to use coop­erative purchasing and cooperative economic action to make sure they remaincompetitive in the marketplace.

A number of national business cooperatives operate in California. Asso­ciated Press is a service for individual newspaper members. FrO (FloralTransworld Delivery), with members nationally and internationally, is a co­operative owned by participating flower shops. True Value and ACE are thetwo largest hardware cooperatives in the U'S, They both have distributingcenters in California to supply their thousands of members who are theindependently-owned hardware businesses located in almost every townin California. Best Western, the world's largest chain of independently­owned hotels, is a cooperative and has a large number of members inCalifornia. Certified Grocers is, by volume, the largest business co-op inCalifornia. There are still more business co-ops serving gas station owners,furniture retailers, realtors, physicians, and other groups.

Recently, franchise trade associations have formed purchasing coopera­tives. For example, at a national level, franchisees of Kentucky Fried Chicken,Dunkin' Donuts, Arby's, Legend Pharmacy, and others have created coopera­tives to pool their purchasing power and return the savings to their members.

In one situation, which may be the beginning ofa trend, a California fran­chising business was purchased by its members as a cooperative. The result­ing Straw Hat Pizza Cooperative Corporation is the first of its kind. Recently,Rico's Pizza in Sacramento was also purchased by its franchisees. Lately, thefranchise world has undergone a number of takeovers and leveraged buyouts.

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As a result, the new franchising companies have demanded higher incomefrom the franchisees. Franchisees are now looking even more to cooperativepurchasing as a way to increase net income to themselves.

The continued impact of chains on small businesses has forced this newlook at the role of cooperatives. Many professional groups like pharmacists,doctors, dentists, and opticians have already created or are now in the processof creating their own cooperative purchasing groups.

Finally, many of the goods that move throughout California are trans­ported by shipping cooperatives.

Nonprofit Cooperatives

In this era of greater competition and higher costs, the nonprofit sectorhas also created effective cooperatives. One of the most innovative is the Cali­fornia Association of Nonprofits. This organization provides to its membernonprofits a wide range of services including group health insurance andpurchasing.

In Oakland, a group of nonprofit hospitals formed a shared servicecooperative to jointly operate a hospital security service, shared patientbilling service, joint purchasing, and even joint ownership of an emergencymedical helicopter.

There are also many nonprofit organizations that operate as coopera­tives, but are incorporated under California nonprofit law. Because of theway nonprofit law works in California, there are many economic benefitsto incorporating as a nonprofit organization.

National Cooperative Bank

The nonagricultural cooperatives are served by the National Coopera­tive Bank (NCB) based in Washington, D.C. With over $300 million in assets,the NCB is the newest cooperative financial institution in the U.S. Started onlyten years ago in 1980, the NCB has become a key element in the cooperativefamily. A nonprofit subsidiary, the NCB Development Corporation (NCBDC),provides specialized financing to start-ups, low-income, and other innovativeco-ops. The NCB and NCBDC both playa major role in financing the co-opsector in California.

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